<PAGE> 1
As filed with the Securities and Exchange Commission on June 3, 1999
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------------
SOUTHTRUST CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 6711 63-0574085
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
420 NORTH 20TH STREET
BIRMINGHAM, ALABAMA 35203
(205) 254-5000
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
----------------------------
ALTON E. YOTHER
SOUTHTRUST CORPORATION
420 NORTH 20TH STREET
BIRMINGHAM, ALABAMA 35203
(205) 254-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
PAUL S. WARE LARRY HAUSLER, ESQ.
BRADLEY ARANT ROSE & WHITE LLP HAUSLER, FARRA & KENNEDY
2001 PARK PLACE STERLING BANK BUILDING
SUITE 1400 4600 GULF FREEWAY, SUITE 600
BIRMINGHAM, ALABAMA 35203-2736 HOUSTON, TEXAS 77023-3551
(205) 521-8000 (713) 928-8100
---------------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate offering Amount of
securities to be registered registered per unit price registration fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$2.50 per share....................... 481,775 Shares(1) * $7,460,107.95(3) $2,073.91
Rights to Purchase Series A Junior
Participating Preferred Stock.......... 481,775 Rights(2)
===========================================================================================================================
</TABLE>
* Not Applicable
(1) This Registration Statement covers the maximum number of shares of the
common stock of the Registrant which is expected to be issued in connection
with the merger of Navigation Bank with and into a subsidiary of the
Registrant based on a conversion ratio known at the time of filing this
Registration Statement.
(2) Represents one Right issued in respect of each share of common stock of the
Registrant issued.
(3) Estimated solely for purposes of determining the amount of the registration
fee, in accordance with Rule 457(f)(2) under the Securities Act of 1933.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
{_______________}, 1999
TO THE SHAREHOLDERS OF NAVIGATION BANK:
You are cordially invited to attend a Special Meeting of the
Shareholders (the "Special Meeting") of Navigation Bank ("Navigation") to be
held on {____________________}, 1999, at {_____} {__}.m., local time, at
{_____________________________________________________}, notice of which is
enclosed.
At the Special Meeting, you will be asked to consider and vote on a
proposal to adopt an Agreement and Plan of Merger (the "Merger Agreement"), as
amended, which provides for the merger (the "Merger") of Navigation with and
into SouthTrust Bank, National Association ("ST-Bank"), a subsidiary of
SouthTrust Corporation ("SouthTrust"). Upon consummation of the Merger, each
share of common stock of Navigation ("Navigation Common Stock") issued and
outstanding (except for certain shares held by Navigation or SouthTrust or its
subsidiaries, in each case other than shares held in a fiduciary capacity or in
satisfaction of debts previously contracted) will be converted into 11.1149
shares of common stock of SouthTrust ("SouthTrust Common Stock") (subject to
possible adjustment under certain circumstances), with cash being paid in lieu
of issuing fractional shares of SouthTrust Common Stock.
Enclosed are the (1) Notice of Special Meeting, (2) Proxy
Statement/Prospectus, and (3) a Proxy for use in connection with the Special
Meeting. The Proxy Statement/Prospectus describes in more detail the Merger
Agreement and the proposed Merger, including a description of the conditions to
consummation of the Merger and the effects of the Merger on the rights of the
shareholders of Navigation. Please read these materials carefully and consider
thoughtfully the information set forth in them.
Approval of the Merger Agreement will require the affirmative vote of
two-thirds of the votes entitled to be cast at the Special Meeting by the
holders of the issued and outstanding shares of Navigation Common Stock, each
share of Navigation Common Stock being entitled to one vote. In 1989, a number
of shareholders of Navigation executed an agreement (the "Voting and Stock
Restriction Agreement") pursuant to which such shareholders granted an
irrevocable proxy to vote their shares of Navigation Common Stock to Jerry E.
Winters and me. In connection with the agreement reached by Navigation and
SouthTrust, Jerry Winters and I have agreed to vote all of the shares of
Navigation Common Stock over which we have voting control in favor of adoption
of the Merger Agreement at the Special Meeting. Mr. Winters and I have voting
control over approximately 91.86% of the issued and outstanding shares of
Navigation Common Stock. Accordingly, it is anticipated that the Merger
Agreement will be adopted at the Special Meeting. If you executed the Voting and
Stock Restriction Agreement, Mr. Winters and I will be voting your shares of
Navigation Common Stock at the Special Meeting and you should not complete and
return the enclosed proxy card.
However, if you did not execute the Voting and Stock Restriction
Agreement, you will be entitled to vote your shares of Navigation Common Stock
at the Special Meeting. Accordingly, whether or not you plan to attend the
Special Meeting, you are urged to complete, sign, and return promptly the
enclosed proxy card. If you attend the Special Meeting, you may vote in person
if you wish, even if you previously have returned your proxy card. The proposed
Merger is a significant step for Navigation and your vote on this matter is of
great importance. THE BOARD OF DIRECTORS OF NAVIGATION HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND CONSUMMATION OF THE MERGER CONTEMPLATED BY THE MERGER
AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER
AGREEMENT. ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL
OF THE MERGER AGREEMENT BY MARKING THE ENCLOSED PROXY CARD "FOR" ITEM ONE.
We urge all our shareholders to attend the Special Meeting to find out
more about this exciting proposal. We look forward to seeing you at the Special
Meeting.
Sincerely,
WILLIAM C. WOODBY
President
<PAGE> 3
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders of
Navigation Bank, a Texas banking corporation ("Navigation"), will be held on
{___________________}, 1999, at {_____} {___}.m., local time, at
{_____________________________________________________} for the following
purposes (the "Special Meeting"):
1. to consider and vote to adopt the Agreement and Plan of
Merger, dated as of May 3, 1999 (the "Merger Agreement"), a copy of
which is annexed as Exhibit A to the accompanying Proxy
Statement/Prospectus, by and among Navigation and SouthTrust Bank,
National Association, a national banking association ("ST-Bank"), and
joined in by SouthTrust Corporation, a Delaware corporation
("SouthTrust"), and SouthTrust of Alabama, Inc., an Alabama corporation
and wholly owned subsidiary of SouthTrust ("ST-Sub"), whereby
Navigation will be merged (the "Merger") with and into ST-Bank and each
share of common stock of Navigation ("Navigation Common Stock") will be
canceled and converted into 11.1149 shares of common stock of
SouthTrust ("SouthTrust Common Stock") (subject to possible adjustment
under certain circumstances), with cash being paid in lieu of issuing
fractional shares of SouthTrust Common Stock, all pursuant to and in
accordance with the terms and conditions of the Merger Agreement, all
as more fully described in the accompanying Proxy Statement/Prospectus;
and
2. to consider and act upon such other matters as may properly
come before the Special Meeting or any adjournment or adjournments
thereof.
Only those persons who were holders of record of shares of common stock
of Navigation at the close of business on {___________}, 1999 are entitled to
notice of and to vote at the Special Meeting and any adjournment thereof. A
holder of Navigation Common Stock who (i) does not vote in favor of the Merger,
and (ii) who otherwise complies with applicable Texas law relating to the
exercise of dissenter's rights, will be entitled to statutory appraisal rights
for such shareholders' shares of Navigation Common Stock. A copy of the
dissenters' rights provisions under applicable law is attached to the enclosed
Proxy Statement/Prospectus as Exhibit B.
The Special Meeting may be adjourned or postponed from time to time
without notice other than announcement at the meeting, or at any adjournment or
postponement thereof, and any business for which notice is hereby given may be
transacted at any such adjournment or postponement.
A Proxy Statement/Prospectus and a Proxy Card for use in connection
with the Special Meeting are enclosed.
By Order of the Board of Directors
----------------------------------
Secretary
Houston, Texas
{____________}, 1999
WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING OR NOT, PLEASE SIGN AND
RETURN THE ENCLOSED PROXY SO THAT NAVIGATION MAY BE ASSURED OF THE PRESENCE OF A
QUORUM AT THE SPECIAL MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE> 4
PROXY STATEMENT/PROSPECTUS
Proxy Statement of
NAVIGATION BANK
For a Special Meeting of its Shareholders
to be held on {________________}, 1999
--------------------------------
This Proxy Statement includes the Prospectus of
SOUTHTRUST CORPORATION
Relating to up to 481,775 shares of Common Stock
(Par Value $2.50 Per Share)
TO BE ISSUED IN CONNECTION WITH A PROPOSED MERGER OF
NAVIGATION BANK INTO
SOUTHTRUST BANK, NATIONAL ASSOCIATION,
A SUBSIDIARY OF SOUTHTRUST CORPORATION
SOUTHTRUST CORPORATION COMMON STOCK IS QUOTED ON NASDAQ UNDER THE
SYMBOL SOTR.
- You should rely only on the information contained in this
document or information that we have referred you to. We have
not authorized anyone to provide you with information that is
different.
- This document offers only the
Common Stock identified on this
page and offers it only where it is
legal to do so.
- The information in this document or that we have referred you
to is correct as of the date of this document, as shown at the
bottom of this page, but it may not continue to be correct
after that date.
- Navigation has provided all of the
information about Navigation
contained in this document.
SouthTrust and its subsidiaries are
relying on the correctness of that
information.
- SouthTrust and its subsidiaries have provided all of the
information about SouthTrust and its subsidiaries that is
contained in this document or that we have referred you to.
Navigation is relying on the correctness of that information.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of Navigation on or about {________________}, 1999.
-----------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SECURITIES OFFERED BY THIS DOCUMENT (1) ARE NOT SAVINGS ACCOUNTS OR BANK
DEPOSITS, (2) ARE NOT OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION, AND (3) ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is {________________}, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.............................................................................................1
INTRODUCTION......................................................................................................2
SUMMARY .........................................................................................................4
The Companies............................................................................................4
The Special Meeting......................................................................................5
The Merger...............................................................................................6
Conduct of Business by Navigation Pending the Merger.....................................................9
Certain Federal Income Tax Consequences..................................................................9
Rights of Dissent and Appraisal..........................................................................9
Comparative Stock Prices.................................................................................9
Resale of Shares of SouthTrust Common Stock Received in the Merger......................................10
Differences in Rights of Shareholders of Navigation.....................................................10
Accounting Treatment....................................................................................11
Cautionary Statement Concerning Forward-Looking Information.............................................11
Equivalent Share Data...................................................................................11
Selected Financial Data.................................................................................12
Selected Pro Forma Information..........................................................................14
THE SPECIAL MEETING..............................................................................................15
General ...............................................................................................15
Purpose of the Special Meeting..........................................................................15
Record Date.............................................................................................15
Voting at the Special Meeting...........................................................................15
Solicitation of Proxies.................................................................................16
Effect of Abstentions and "Broker Non-Votes"............................................................16
THE MERGER.......................................................................................................17
General ...............................................................................................17
Background of and Reasons for the Merger................................................................18
Opinion of Financial Adviser............................................................................20
Interests of Certain Named Persons in the Merger........................................................24
Effect of the Merger on Shares of Navigation Common Stock...............................................25
Possible Conversion Ratio Adjustment....................................................................25
Effective Time of the Merger............................................................................26
Exchange of Stock Certificates..........................................................................27
Resale of Shares of SouthTrust Common Stock Received in the Merger......................................27
Accounting Treatment....................................................................................28
Regulatory Approvals and Certain Other Conditions to the Merger.........................................28
Waiver and Amendment....................................................................................30
Termination.............................................................................................30
Certain Expenses........................................................................................32
Rights of Dissent and Appraisal.........................................................................32
Conduct of Business by Navigation Pending the Merger....................................................33
Business and Management of Navigation Following the Merger..............................................34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..........................................................................35
DESCRIPTION OF SOUTHTRUST CAPITAL STOCK..........................................................................37
General ...............................................................................................37
SouthTrust Common Stock.................................................................................38
SouthTrust Preferred Stock..............................................................................40
MARKET PRICE AND DIVIDEND INFORMATION RESPECTING SHARES OF
SOUTHTRUST COMMON STOCK AND SHARES OF NAVIGATION COMMON STOCK...........................................41
Market Price............................................................................................41
Dividends...............................................................................................41
COMPARISON OF SHARES OF SOUTHTRUST COMMON STOCK
AND SHARES OF NAVIGATION COMMON STOCK...................................................................43
Dividends...............................................................................................43
Voting Rights and Other Matters.........................................................................43
Dissent and Appraisal Rights............................................................................47
Rights on Liquidation...................................................................................47
Preemptive Rights.......................................................................................47
Reports to Stockholders and Shareholders................................................................47
Stockholders' Rights Plan...............................................................................47
</TABLE>
i
<PAGE> 6
<TABLE>
<S> <C>
SUPERVISION AND REGULATION.......................................................................................48
SouthTrust..............................................................................................48
Navigation..............................................................................................50
CERTAIN INFORMATION CONCERNING THE BUSINESS OF NAVIGATION........................................................50
General ...............................................................................................50
Employees...............................................................................................51
Description of Properties...............................................................................51
Legal Proceedings.......................................................................................52
Regulation and Legislation..............................................................................52
Certain Relationships and Related-Party Transactions....................................................52
Beneficial Ownership of Navigation Common Stock.........................................................52
NAVIGATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................................................54
General ...............................................................................................54
Results of Operations...................................................................................54
Net Interest Income.....................................................................................56
Rate/Volume Analysis of Net Income......................................................................58
Provision for Loan Losses...............................................................................58
Non-Interest Income.....................................................................................59
Non-Interest Expense....................................................................................59
Income Taxes............................................................................................60
Asset/Liability Management..............................................................................60
Lending Activities......................................................................................62
Asset Quality...........................................................................................63
Classification of Assets................................................................................64
Allowance for Loan Losses...............................................................................64
Investment Activities...................................................................................65
Deposit Activities......................................................................................66
Return on Equity and Assets.............................................................................68
Liquidity and Capital Resources.........................................................................68
Impact of Inflation and Changing Prices.................................................................68
Federal and State Taxation..............................................................................68
CERTAIN INFORMATION ABOUT SOUTHTRUST.............................................................................69
Incorporation of Certain Documents by Reference.........................................................69
Where You Can Find More Information About SouthTrust....................................................69
LEGAL MATTERS....................................................................................................69
EXPERTS ........................................................................................................70
OTHER SHAREHOLDER PROPOSALS......................................................................................70
FINANCIAL STATEMENTS OF NAVIGATION..............................................................................F-1
EXHIBIT A - AGREEMENT AND PLAN OF MERGER........................................................................A-1
EXHIBIT B - FAIRNESS OF OPINION OF HOEFER & ARNETT INCORPORATED.................................................B-1
EXHIBIT C -TEXAS BUSINESS CORPORATION ACT DISSENT PROVISIONS....................................................C-1
</TABLE>
ii
<PAGE> 7
AVAILABLE INFORMATION
SouthTrust is required by the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to give certain information about itself to the
Securities and Exchange Commission (the "Commission"). Therefore, SouthTrust
files reports, proxy and information statements and other information with the
Commission. You may read and copy this information at the following locations:
Securities and Exchange Commission
Judiciary Plaza, Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
Securities and Exchange Commission
Seven World Trade Center, Suite 1300
New York, New York 10048
Securities Exchange Commission
Citicorp Center, Suite 1400
500 West Madison Street
Chicago, Illinois 60661-2511
http://www.sec.gov
(the Commission's site on the world wide web)
National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20096
COPIES OF SUCH MATERIAL CAN BE OBTAINED AT PRESCRIBED RATES FROM:
Securities and Exchange Commission
Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
You may obtain further information about the operation of the Public Reference
Room by calling 1-800-SEC-0330.
-----------------------------------------------------------------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED IN OR DELIVERED WITH THIS DOCUMENT. THE DOCUMENTS RELATING TO
SOUTHTRUST (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE ON REQUEST WITHOUT
CHARGE FROM:
ALTON E. YOTHER
SOUTHTRUST CORPORATION
420 NORTH 20TH STREET
BIRMINGHAM, ALABAMA 35203
TELEPHONE NUMBER (205) 254-5000.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, YOU SHOULD MAKE YOUR
REQUEST BY {____________}, 1999. SEE "CERTAIN INFORMATION ABOUT SOUTHTRUST."
You can find more information about the Common Stock that is offered by
this document if you read SouthTrust's Registration Statement on Form S-4 (we
will refer to it and any amendments to it as the "Registration Statement") which
has been filed with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This Proxy Statement/ Prospectus does not contain all of
the information contained in the Registration Statement and its exhibits and
schedules. In this Proxy Statement/ Prospectus, we may discuss the contents of
contracts or other documents. Our statements about these other documents are not
necessarily complete, and therefore in each instance we will refer you to a copy
of such contract or other document that is filed as an exhibit to the
Registration Statement. Such statements are qualified in all respects by those
references.
You may inspect the Registration Statement and its exhibits and
schedules at the Commission's office at 450 Fifth Street, N.W., Washington, D.C.
20549. You may also obtain copies of the Registration Statement and its exhibits
and schedules from the Public Reference Section of the Commission at the same
address at prescribed rates.
1
<PAGE> 8
INTRODUCTION
We are providing this Proxy Statement/Prospectus to you as a
shareholder of Navigation Bank, a Texas banking corporation ("Navigation"), in
connection with the solicitation of your proxy by the Board of Directors of
Navigation (the "Board")for use at a special meeting of shareholders of
Navigation to be held on {________________}, 1999, at {______} {__}m., local
time, at {_____________________________________________________} and at any
adjournment or postponement of the Special Meeting (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon the
merger of Navigation with and into SouthTrust Bank, National Association
("ST-Bank"). The Boards of Directors of Navigation and ST-Bank have approved the
Merger. At the Special Meeting you will be considering and voting on the
Agreement and Plan of Merger, dated as of May 3, 1999 (the "Merger Agreement"),
between Navigation and ST-Bank, and joined in by SouthTrust Corporation, a
Delaware corporation ("SouthTrust"), and SouthTrust of Alabama, Inc., an Alabama
corporation and a wholly-owned subsidiary of SouthTrust ("ST-Sub"), providing
for the Merger.
If the shareholders of Navigation approve the Merger Agreement and all
conditions contained in the Merger Agreement are met or waived, then the Merger
will become effective on the date and at the time on which the Merger is deemed
effective (the "Effective Time of the Merger") by the Office of the Comptroller
of the Currency (the "Comptroller").
We have included a copy of the Merger Agreement as Exhibit A of this
document. To understand the Merger more fully, you should carefully read the
Merger Agreement in addition to this Proxy Statement/Prospectus.
See "THE MERGER" at p. 17, 10.
WHAT YOU WILL RECEIVE IN THE MERGER
If the Merger is consummated, each outstanding share of Navigation
Common Stock (except shares as to which dissenters' rights are perfected) will
be converted into 11.1149 shares of SouthTrust Common Stock, as may be subject
to possible adjustment under certain circumstances (the "Conversion Ratio"). See
"THE MERGER - Effect of the Merger on Shares of Navigation Common Stock."
The 11.1149 shares of SouthTrust Common Stock for which each share of
Navigation Common Stock may be exchanged in the Merger had an aggregate market
value of ${_____}, based upon the last sales price of SouthTrust Common Stock on
{________________}, 1999. See "DESCRIPTION OF SOUTHTRUST CAPITAL STOCK -
SouthTrust Common Stock" at p. 38 and "MARKET PRICE AND DIVIDEND INFORMATION
RESPECTING SHARES OF SOUTHTRUST COMMON STOCK AND SHARES OF NAVIGATION COMMON
STOCK" at p. 41. Since each share of Navigation Common Stock will be converted
into a fixed number of shares of SouthTrust Common Stock in the Merger, a change
in the market price of SouthTrust Common Stock before the Merger would affect
the value of the SouthTrust Common Stock that you would receive in the Merger in
exchange for each share of Navigation Common Stock. The Merger Agreement,
however, provides that, if the value of SouthTrust Common Stock has fallen by a
certain amount and certain other circumstances have occurred, then Navigation
will have the right to terminate the Merger Agreement. In such event, however,
SouthTrust may elect to adjust the Conversion Ratio in the manner described
under "THE MERGER - Possible Conversion Ratio Adjustment" at p. 25.
In the Merger, you may also receive a small cash payment, equal to the
value of any fractional shares of SouthTrust Common Stock that you would
otherwise receive, instead of receiving any fractional shares.
2
<PAGE> 9
The Board of Directors of Navigation has fixed the close of business on
{________________}, 1999 as the record date (the "Record Date") to determine the
holders of shares of Navigation Common Stock who are entitled to notice of and
to vote at the Special Meeting.
Before any business may be transacted at the Special Meeting, a
majority of the shares of Navigation Common Stock entitled to vote at the
Special Meeting must be present, in person or by proxy, at the Special Meeting.
This is known as the quorum. As of the close of business on the Record Date,
there were 43,345 shares of Navigation Common Stock issued and outstanding.
Accordingly, before any business may be transacted at the Special Meeting, there
must be at least 21,673 shares of Navigation Common Stock present, in person or
by proxy, at the Special Meeting.
The holders of two-thirds of the outstanding shares of Navigation
Common Stock must vote for the Merger Agreement in order to approve it. Each
holder of record of shares of Navigation Common Stock on the Record Date is
entitled to one vote for each share of such Navigation Common Stock held of
record.
Pursuant to a Voting and Stock Restriction Agreement (the "Voting and
Stock Restriction Agreement"), dated January 6, 1989, holders of 39,816.5 shares
of Navigation Common Stock (representing 91.86% of the issued and outstanding
shares of Navigation Common Stock) have granted an irrevocable proxy to vote
such shares to Jerry E. Winters and William C. Woodby (the "Co-Voting
Representatives"). Pursuant to a voting agreement (the "Voting Agreement"),
dated May 3, 1999, the Co-Voting Representatives have agreed to vote the shares
of Navigation Common Stock over which they have voting control in favor of
approval of the Merger Agreement and the Merger. Accordingly, it is anticipated
that the Merger Agreement will be adopted, and consequently, the Merger
approved, at the Special Meeting.
Under the Texas Business Corporation Act (the "TBCA"), if a shareholder
of Navigation (i) does not vote "FOR" the Merger and (ii) otherwise complies
with Article 5.12 of the TBCA relating to the exercise dissenter's rights, such
shareholder shall be entitled to statutory appraisal rights for his shares of
Navigation Common Stock. If the Merger is consummated, such shares will be paid
for in cash pursuant to the process described in "THE MERGER - Rights of Dissent
Appraisal" at p. 32. Shareholders of Navigation who exercise their dissenters'
rights in connection with the Merger and therefore receive cash, will encounter
income tax treatment different from the treatment for shareholders of Navigation
who receive SouthTrust Common Stock in the Merger. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" at p. 35.
If you are one of the shareholders who executed the Voting and Stock
Restriction Agreement, you have granted an irrevocable proxy to the Co-Voting
Representatives. Under the terms of the Voting and Stock Restriction Agreement,
you can not revoke the proxy you granted to them. This means that the Co-Voting
Representatives will be voting your shares of Navigation Common Stock at the
Special Meeting and you are not required to complete and return the enclosed
proxy card which accompanies this Proxy Statement/Prospectus.
If you are a shareholder of Navigation who has not executed the Voting
and Stock Restriction Agreement you will be entitled to vote your own shares of
Navigation Common Stock at the Special Meeting. Accordingly if you properly
complete and return a proxy in the form enclosed, in time for the voting at the
Special Meeting, with instructions specified on the proxy, then your shares will
be voted in accordance with such instructions. If you do not specify
instructions, then your signed proxy will be voted FOR approval of the Merger
Agreement. You may revoke your proxy at any time prior to its exercise (1) by
filing with the Secretary of Navigation either an instrument revoking the proxy
or a duly executed proxy bearing a later date or (2) by attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not by
itself revoke a proxy. THE BOARD OF DIRECTORS OF NAVIGATION RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT. SEE "THE MERGER -
BACKGROUND AND REASONS FOR THE MERGER" AT P. 18. REGARDLESS OF WHETHER OR NOT
YOU INTEND TO ATTEND THE SPECIAL MEETING, WE ASK THAT YOU COMPLETE, SIGN AND
DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED,
POSTAGE-PAID ENVELOPE.
3
<PAGE> 10
SUMMARY
The following summary of material aspects of the Merger is not intended
to be complete and is qualified by the more detailed discussion
elsewhere in this Proxy Statement/Prospectus. The Agreement and Plan of
Merger, which we refer to throughout this Proxy Statement/Prospectus as
the "Merger Agreement," is attached as Appendix A. To understand the
Merger fully, you should read carefully this entire Proxy
Statement/Prospectus, including the Merger Agreement and the other
documents we have referred you to. See "Where You Can Find More
Information" at p. 69.
THE COMPANIES
SouthTrust
420 North 20th Street
Birmingham, Alabama 35203
(205) 254-5000
SouthTrust is a regional bank holding company headquartered in
Birmingham, Alabama, and is engaged in a full range of banking services from
more than 600 banking locations in Alabama, Florida, Georgia, Mississippi, North
Carolina, South Carolina, Tennessee and Texas. SouthTrust also offers a range of
other services, including mortgage banking services, fiduciary and trust
services and securities brokerage services. As of March 31, 1999, SouthTrust had
consolidated total assets of approximately $39.0 billion.
SouthTrust has pursued a strategy of acquiring banks and financial
institutions in or near major metropolitan or growth markets in Alabama,
Florida, Georgia, Mississippi, North Carolina, South Carolina, Tennessee and
Texas. The purpose of this strategy is to give SouthTrust business development
opportunities in metropolitan markets with favorable prospects for population
and per capita income growth.
Through the first quarter of 1999, SouthTrust effected one acquisition
of a financial institution with total assets of $138.4 million. The following
table presents certain information as of March 31, 1999 with respect to
transactions that are currently pending as of the date of this Proxy
Statement/Prospectus, including the Merger:
<TABLE>
<CAPTION>
Institution Location Total Assets Total Deposits Total Loans*
- ----------- -------- ------------ -------------- ------------
(in millions)
<S> <C> <C> <C> <C>
Navigation Bank Houston, TX $ 80.8 $ 72.7 $ 55.5
First of Groves Corporation Groves, TX $ 519.3 $ 473.8 $ 240.0
</TABLE>
- --------------
*Net of unearned income
SouthTrust anticipates that the acquisition of Navigation will be
accounted for as a pooling of interests and the acquisition of First of Groves
Corporation will be accounted for as a purchase. Consummation of the pending
transactions is subject to, in each case, among other things, approval by
applicable regulatory authorities.
SouthTrust routinely evaluates opportunities to acquire bank holding
companies, banks and other financial institutions. Thus, at any particular point
in time, including the date of this Proxy Statement/Prospectus, discussions and,
in some cases, negotiations and due diligence activities looking toward or
leading to the execution of preliminary or definitive acquisition agreements may
occur or be in progress. These transactions may involve SouthTrust acquiring
such financial institutions in exchange for cash or capital stock, and depending
upon the terms of these transactions, the transactions may dilute the SouthTrust
Common Stock to be issued to holders of Navigation Common Stock in the Merger.
Navigation
3801 Navigation Boulevard
Houston, Texas 77001
(713) 223-3400
Navigation was organized in 1974 as a banking corporation under the
laws of the State of Texas and began operation on January 16, 1975 to serve the
banking needs of the residents of southeast Houston, Texas. Since its
organization, Navigation has provided most traditional commercial banking
services, such as interest and
4
<PAGE> 11
non-interest bearing checking and savings accounts, commercial, real estate
mortgage, and installment consumer loans, certificates of deposit and individual
retirement accounts, among others. Navigation provides commercial banking
services to residents of Houston, Texas, through its main banking office and its
branch offices, located at 4410 North Freeway, 3730 Kirby, Suite 100 and 2800
Woodridge on Gulf Freeway, all of which are located in Houston, Texas, and which
opened for business on May 2, 1994, May 15, 1995 and July 16, 1998,
respectively.
SouthTrust of Alabama, Inc.
ST-Sub, an Alabama corporation, is a wholly owned subsidiary of
SouthTrust. It owns ST-Bank. The main office of ST-Sub is located in Birmingham,
Alabama.
SouthTrust Bank, National Association
ST-Bank, a national banking association, is a wholly owned subsidiary
of ST-Sub. The main office of ST-Bank is located in Birmingham, Alabama.
THE SPECIAL MEETING
Purpose of the Special Meeting
At a special meeting of the shareholders of Navigation (the "Special
Meeting"), the shareholders of Navigation will be asked to consider and vote
upon a proposal to adopt the Merger Agreement.
Date, Time and Place of the Special Meeting
The Special Meeting will be held at {__} {_}m., local time, on
{___________________}, 1999, at {________________________}.
The Record Date
If you are a record owner of shares of common stock, par value $32.50
per share, of Navigation ("Navigation Common Stock") as of the close of business
on {________}, 1999, you are entitled to notice of the Special Meeting and to
vote at the Special Meeting and at any adjournment or postponement thereof.
Voting at the Special Meeting
Before any business may be transacted at the Special Meeting, a
majority of the shares of Navigation Common Stock entitled to vote at the
Special Meeting must be present, in person or by proxy, at the Special Meeting.
This is known as the quorum. As of the close of business on the Record Date,
there were 43,345 shares of Navigation Common Stock issued and outstanding.
Accordingly, before any business may be transacted at the Special Meeting, there
must be at least 21,673 shares of Navigation Common Stock present, in person or
by proxy, at the Special Meeting.
Adoption of the Merger Agreement at the Special Meeting will require
the approval of the holders of two thirds of all of the outstanding shares of
Navigation Common Stock. Each share of Navigation Common Stock is entitled to
one vote with respect to all matters presented at the Special Meeting. Pursuant
to a Voting and Stock Restriction Agreement (the "Voting and Stock Restriction
Agreement"), dated January 6, 1989, holders of 39,816.5 shares of Navigation
Common Stock (representing 91.86% of the issued and outstanding shares of
Navigation Common Stock) have granted an irrevocable proxy to vote such shares
to Jerry E. Winters and William C. Woodby (the "Co-Voting Representatives").
Pursuant to a voting agreement (the "Voting Agreement"), dated May 3, 1999, the
Co-Voting Representatives have agreed to vote the shares of Navigation Common
Stock over which they have voting control in favor of adoption of the Merger
Agreement. Accordingly, it is expected that the Merger Agreement will be
adopted, and consequently, the Merger will be approved, at the Special Meeting.
See "THE SPECIAL MEETING -- Voting at the Special Meeting" at p. 5.
Revocability of Proxies
With the exception of those proxies which have been granted to the
Co-Voting Representatives pursuant to the Voting and Stock Restriction
Agreement, any shareholder of Navigation who executes and returns a proxy may
revoke such proxy at any time before it is voted by (i) filing with the
Secretary of Navigation at or before the Special Meeting, a written notice of
revocation bearing a later date than the proxy, (ii) duly executing a subsequent
proxy relating to the same shares of Navigation Common Stock and delivering it
to the Secretary of Navigation at or
5
<PAGE> 12
before the Special Meeting, or (iii) attending the Special Meeting and voting in
person by ballot.
Attendance at the Special Meeting will not in and of itself constitute
revocation of a proxy. See "THE SPECIAL MEETING -- Voting at the Special
Meeting" at p. 5.
THE MERGER
Terms of the Merger
On May 3, 1999, SouthTrust, its subsidiaries, ST-Sub and ST-Bank, and
Navigation executed the Merger Agreement, pursuant to which the parties agreed
that, if the shareholders of Navigation approve the Merger Agreement at the
Special Meeting and certain other conditions are met, Navigation will be merged
into ST-Bank, and ST-Bank will be the surviving corporation (the "Surviving
Corporation").
If you are a shareholder of Navigation, and assuming that you do not
exercise dissenters' rights of appraisal, you will receive 11.1149 shares of
SouthTrust Common Stock for each share of Navigation Common Stock you own on the
date of the Merger, unless the Conversion Ratio is adjusted according to the
Merger Agreement. See "THE MERGER - General" at p. 17 and "- Effect of the
Merger on Shares of Navigation Common Stock" at p. 25.
The Conversion Ratio and the number of shares of SouthTrust Common
Stock to be issued in the Merger will be adjusted if SouthTrust makes any stock
splits, stock dividends, reclassifications or similar distributions.
In addition to SouthTrust Common Stock, you will also receive a check
for a small amount of cash instead of any fractional shares you might otherwise
receive. To determine how much cash you will receive, we will multiply the
fractional number of shares you are otherwise entitled to by the closing price
of SouthTrust Common Stock on the last trading day before the Effective Time of
the Merger.
Navigation can terminate the Merger Agreement if, for the twenty (20)
consecutive trading day period during which shares of SouthTrust Common Stock
are traded on NASDAQ, ending on the forty-fifth (45th) day prior to the
anticipated closing date, the actual average closing price of shares of
SouthTrust Common Stock is less than $33.52. At that point, SouthTrust can agree
to issue more SouthTrust Common Stock by increasing the Conversion Ratio.
However, SouthTrust is not required to adjust the Conversion Ratio, and it is
possible under these circumstances that the Board of Directors of Navigation
could decide that proceeding with the Merger at the lower Conversion Ratio would
still be in your best interest and consistent with the Board's fiduciary duties.
Promptly after the Effective Time of the Merger, SouthTrust or its
agents will send you a letter of transmittal for use in exchanging your stock
certificates formerly representing shares of Navigation Common Stock for the
right to receive certificates representing the appropriate number of shares of
SouthTrust Common Stock plus a cash payment for any fractional shares. YOU
SHOULD NOT SEND IN YOUR NAVIGATION STOCK CERTIFICATES UNTIL YOU RECEIVE THE
LETTER OF TRANSMITTAL AND INSTRUCTIONS. See "THE MERGER - Exchange of Stock
Certificates" at p. 27.
Background of and Reasons for the Merger; Recommendations of the Board of
Directors of Navigation
The Board of Directors of Navigation believes that the Merger Agreement
and the Merger are in the best interest of Navigation's shareholders. THE
NAVIGATION DIRECTORS UNANIMOUSLY RECOMMEND THAT NAVIGATION SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT. In unanimously approving the Merger Agreement,
Navigation's directors considered a number of factors, including Navigation's
and SouthTrust's financial conditions, the financial terms and the income tax
consequences of the Merger, the likelihood of the Merger being approved by
regulatory authorities without undue conditions or delay and legal advice
concerning the proposed Merger. The Navigation directors also took into account
an opinion received from Hoefer & Arnett Incorporated ("Hoefer"), Navigation's
financial advisor in connection with the Merger, that the consideration to be
received by shareholders of Navigation in the Merger is fair from a financial
point of view.
SouthTrust is engaging in the Merger because the Merger Agreement is
consistent with SouthTrust's expansion strategy within the southern United
States and because the acquisition of Navigation will increase SouthTrust's
existing market share in Texas and enhance its competitive position in that
market.
See "THE MERGER - Background of and Reasons for the Merger" at p. 18.
6
<PAGE> 13
Interests of Certain Named Persons in the Merger; Affiliate Agreements
Certain officers and directors of Navigation may have interests in the
Merger that are different from your interests as a shareholder. For example,
SouthTrust has agreed to indemnify directors, officers, employees and agents of
Navigation from certain liabilities arising after the Merger, to the full extent
permitted under Delaware law and SouthTrust's Restated Certificate of
Incorporation and Bylaws. In connection with the Merger Agreement, all of the
Navigation directors and executive officers have entered into affiliate
agreements with SouthTrust which temporarily restrict them from transferring the
shares of SouthTrust Common Stock they receive in the Merger. Additionally,
SouthTrust's indirect banking subsidiary, ST-Bank, has executed an employment
agreement (the "Employment Agreement") with William C. Woodby, pursuant to which
ST-Bank will employ Mr. Woodby after consummation of the Merger. In addition,
ST-Bank anticipates entering into two Stay-Pay Agreements with Paul W. Jury, Jr.
and James Newton, both directors and officers of Navigation, pursuant to which
Messrs. Jury and Newton will be paid $12,500.00 if they remain employed by
Navigation until the Merger is consummated and will receive a further $12,500.00
each if they remain in the employment of the Surviving Corporation until the
data processing and other operational conversion is completed. For further
details on the Employment Agreement and the Stay-Pay Agreements, see "THE MERGER
- - Interests of Certain Named Persons in the Merger" at p. 24.
Effective Time of the Merger
If the conditions of the Merger Agreement are met, the Effective Time
of the Merger will occur on the date and at the time on which the Merger is
deemed effective by the Office of the Comptroller of the Currency. Navigation
and SouthTrust have agreed to use their reasonable efforts to cause the
Effective Time of the Merger to occur on the first business day following the
later of (1) the effective date (including the expiration of any applicable
waiting period) of the last consent of any regulatory authority required for the
Merger and (2) the date on which the shareholders of Navigation approve the
Merger Agreement, or at such other time as the parties may agree. See "THE
MERGER - Effective Time of the Merger" at p. 28 and "THE MERGER - Regulatory
Approvals and Certain Other Conditions to Consummation of the Merger" at p. 28
and "- Waiver and Amendment" at p. 30.
THE CO-VOTING REPRESENTATIVES HAVE AGREED PURSUANT TO THE VOTING
AGREEMENT TO VOTE THE SHARES OF NAVIGATION COMMON STOCK OVER WHICH THEY HAVE
VOTING CONTROL IN FAVOR OF ADOPTION OF THE MERGER AGREEMENT. ACCORDINGLY, IT IS
ANTICIPATED THAT THE MERGER AGREEMENT WILL BE ADOPTED, AND CONSEQUENTLY, THE
MERGER WILL BE APPROVED, AT THE SPECIAL MEETING. HOWEVER, WE CANNOT ASSURE YOU
THAT THE NECESSARY REGULATORY APPROVALS WILL BE OBTAINED OR THAT THE OTHER
CONDITIONS TO THE MERGER CAN OR WILL BE SATISFIED. NAVIGATION AND SOUTHTRUST
ANTICIPATE THAT ALL CONDITIONS TO THE CONSUMMATION OF THE MERGER WILL BE
SATISFIED SO THAT THE MERGER CAN BE CONSUMMATED ON OR BEFORE JULY 30, 1999.
HOWEVER, DELAYS IN THE CONSUMMATION OF THE MERGER COULD OCCUR.
Ownership of SouthTrust following the Merger
SouthTrust will issue approximately 481,775 shares of its stock to
Navigation shareholders in connection with the Merger, which will constitute
less than 1% of the outstanding stock of SouthTrust after the Merger. The shares
will be listed for trading on the Nasdaq National Market ("NASDAQ").
Opinion of Financial Adviser
Hoefer & Arnett Incorporated ("Hoefer"), acting as financial adviser to
Navigation, has issued its Opinion stating that the consideration to be received
by Navigation shareholders in the Merger is fair, from a financial point of
view. The full text of Hoefer's Opinion is set forth as Exhibit B to this Proxy
Statement/Prospectus. See "THE MERGER - Opinion of Financial Adviser" at p. 20.
Regulatory Approvals and Certain Other Conditions to the Merger; Waiver and
Amendment
The obligations of SouthTrust and Navigation to consummate the Merger
are subject to certain conditions, including, among others, (1) the receipt of
all required regulatory approvals with respect to the Merger, (2) the approval
of the Merger Agreement by the requisite vote of Navigation shareholders, and
(3) certain other conditions customary in transactions of this kind.
The Merger must be approved by the Comptroller under the Bank Merger
Act, and ST-Bank has submitted an application to the Comptroller seeking
approval of the Merger which is still pending.
If the Comptroller approves the Merger, then the United States
Department of Justice has 30 days in which to comment adversely on the
transaction or challenge the Merger on antitrust grounds. If the United States
Attorney General does not give the Comptroller any adverse comments in the first
15 days after approval by the Comptroller and the United States Attorney General
consents to the shorter period, then the Merger may be consummated before
7
<PAGE> 14
the 30 day period has ended. If an antitrust action is begun, then the
effectiveness of the Comptroller's approval will be suspended unless a court
specifically orders otherwise.
THE MERGER CANNOT PROCEED WITHOUT THE REQUIRED REGULATORY APPROVALS. IT
IS POSSIBLE THAT THESE GOVERNMENTAL AUTHORITIES MAY IMPOSE CONDITIONS FOR
GRANTING APPROVAL. WE CANNOT PREDICT WHETHER WE WILL OBTAIN THE REQUIRED
REGULATORY APPROVALS WITHIN THE TIME FRAME CONTEMPLATED BY THE MERGER AGREEMENT
OR ON CONDITIONS THAT WOULD NOT BE DETRIMENTAL TO NAVIGATION, SOUTHTRUST OR THE
SURVIVING CORPORATION. WE CANNOT BE SURE THAT THE UNITED STATES DEPARTMENT OF
JUSTICE OR A STATE ATTORNEY GENERAL WILL NOT CHALLENGE THE MERGER.
The Merger Agreement may be amended by mutual consent of the parties at
any time before the Merger actually takes place, and the parties may agree to
extend the time within which any action required by the Merger Agreement is to
take place. However, if an amendment would change the amount or form of what the
shareholders of Navigation would receive in the merger, the amendment will have
to be approved by the shareholders of Navigation. See "THE MERGER - Regulatory
Approvals and Certain Other Conditions to the Merger" at p. 28 and "- Waiver and
Amendment" at p. 30.
Termination
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time of the Merger in any of the following ways:
- by the mutual consent in writing of SouthTrust, ST-Sub,
ST-Bank and Navigation;
- by SouthTrust, ST-Sub, ST-Bank or Navigation if the Merger has
not occurred on or prior to October 31, 1999, but only if the
party electing to terminate is not in breach of the Merger
Agreement;
- by SouthTrust, ST-Sub, ST-Bank or Navigation (if the
terminating party is not then in breach of any representation,
warranty, covenant or other agreement contained in the Merger
Agreement) if the other party's representations or warranties
are inaccurate and the inaccuracy cannot be or has not been
cured within a specified period;
- by SouthTrust, ST-Sub, ST-Bank or Navigation (if the
terminating party is not then in breach of any representation,
warranty, covenant or other agreement contained in the Merger
Agreement) if the other party has materially breached any
covenant or other agreement given by it and the breach cannot
be or has not been cured within a specified period;
- by SouthTrust, ST-Sub, ST-Bank or Navigation if (1) any
consent from any regulatory authority required to consummate
the Merger is denied in a final appeal, (2) the parties fail
to appeal within the specified period any decision of a
regulatory authority denying approval of the Merger, or (3)
the shareholders of Navigation fail to vote in favor of the
Merger Agreement and the Merger;
- by SouthTrust, ST-Sub, ST-Bank or Navigation (if the
terminating party is not then in breach of any representation,
warranty, covenant or other agreement contained in the Merger
Agreement) if any of the conditions to the obligations of the
other party to consummate the Merger cannot be satisfied or
fulfilled;
- by SouthTrust, ST-Sub or ST-Bank, if any shareholder of
Navigation has commenced or threatened to commence any
litigation challenging the validity of the decision of
Navigation that Section 6 of the Voting and Stock Restriction
Agreement is not applicable to the Merger; or
- by Navigation if the actual average closing price of shares of
SouthTrust Common Stock for the twenty (20) consecutive days
shares of SouthTrust Common Stock are traded on NASDAQ ending
on the forty-fifth (45th) day prior to the anticipated closing
date is less than $33.52, as set forth in more detail in "THE
MERGER - Possible Conversion Ratio Adjustment" at p. 25.
If the Merger Agreement is terminated, then the only liability or
obligation that will continue under the Merger Agreement (other than a possible
termination fee) will be liability by a breaching party for an uncured willful
breach of any representations, warranties, covenants or other agreements leading
to the termination.
Furthermore, Navigation shall pay to SouthTrust a cash amount of $750,000 as an
agreed-upon termination fee as the sole and exclusive remedy against Navigation
if (1) Navigation receives an offer or proposal to enter an
8
<PAGE> 15
acquisition transaction with a third party, (2) the Merger Agreement and the
Merger are then disapproved by Navigation or the shareholders of Navigation, and
(3) Navigation consummates or agrees to consummate an
acquisition transaction with a third party within one year after the Merger
Agreement is disapproved by Navigation or the shareholders of Navigation. See
"THE MERGER - Termination" at p. 30.
CONDUCT OF BUSINESS BY NAVIGATION PENDING THE MERGER
The Merger Agreement provides that until the Effective Time of the
Merger, Navigation will operate its business only in the usual, regular, and
ordinary course, preserve intact its business organization, employees, goodwill
with customers and advantageous business relationships and retain the services
of its officers and the key employees unless otherwise required by law or
regulation or except as approved otherwise by SouthTrust. In addition,
Navigation has also agreed that it will not do or agree to commit to do certain
acts or take certain actions without the prior written consent of SouthTrust.
See "THE MERGER - Conduct of Business by Navigation Pending the Merger" at p.
33.
No Solicitation
Navigation has agreed that it will not, through any director or officer
or other agent, solicit or encourage any acquisition proposal by any person.
Navigation must promptly notify SouthTrust if it receives any inquiry or
proposal relating to any acquisition transaction. Navigation has also agreed
that, except to the extent necessary to comply with the fiduciary duties of
Navigation's Board of Directors, as advised in writing by counsel, it will not,
nor will any director, officer, employee or representative of Navigation,
furnish any non-public information it is not otherwise legally obligated to
furnish, or negotiate or enter into any agreement or contract with respect to
any takeover proposal.
However, Navigation may communicate information about such an
acquisition proposal to the shareholders of Navigation if and to the extent it
is required to do so by law as advised by legal counsel. See "THE MERGER Conduct
of Business by Navigation Pending the Merger - No Solicitation" at p. 34.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger has been arranged so that SouthTrust, Navigation and
shareholders of Navigation should not recognize any gain or loss for federal
income tax purposes in the Merger, except for taxable gains or losses
attributable to cash received by shareholders of Navigation in lieu of
fractional shares of SouthTrust Common Stock, or pursuant to the exercise of
dissenters' rights as described in this Proxy Statement/Prospectus.
YOUR FEDERAL, STATE AND LOCAL TAX CONSEQUENCES MAY VARY DEPENDING UPON
YOUR PARTICULAR CIRCUMSTANCES. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE
MERGER IN YOUR PARTICULAR CIRCUMSTANCES.
RIGHTS OF DISSENT AND APPRAISAL
If the Merger is consummated, shareholders of Navigation who (i) do not
vote in favor of the Merger, and (ii) who otherwise comply with Articles 5.12
and 5.13 of the Texas Business Corporation Act (the "Dissent Provisions")
relating to the exercise of the dissenter's rights will be entitled to statutory
appraisal rights for their shares of Navigation Common Stock. The text of
Articles 5.12 and 5.13 of the Dissent Provisions and other pertinent statutory
provisions are reprinted in their entirety as Exhibit C to this Proxy
Statement/Prospectus. If you have a beneficial interest in shares of Navigation
Common Stock that is held of record in the name of another person, such as a
broker or nominee, you must act promptly to cause the record holder to follow
the necessary steps properly and in a timely manner to perfect whatever
dissenters' rights you may have. THE PROVISIONS OF ARTICLE 5.12 OF THE ARE
TECHNICAL IN NATURE AND ARE COMPLEX. SHAREHOLDERS OF NAVIGATION DESIRING TO
EXERCISE APPRAISAL RIGHTS AND OBTAIN APPRAISAL OF THE VALUE OF THE SHARES OF
NAVIGATION COMMON STOCK OWNED BY THEM ARE URGED TO CONSULT THEIR LEGAL COUNSEL
FOR SPECIFIC ADVICE REGARDING THE INTERPRETATION OF THE TBCA WITH RESPECT TO
DISSENTER'S RIGHTS. See "THE MERGER - Rights of Dissent and Appraisal" at p. 32.
COMPARATIVE STOCK PRICES
Shares of SouthTrust Common Stock are quoted on NASDAQ under the symbol
SOTR. As of March 31, 1999, SouthTrust had approximately 15,312 holders of
record of shares of SouthTrust Common Stock. As of March 31, 1999, Navigation
had approximately 43 holders of record of shares of Navigation Common Stock.
9
<PAGE> 16
Shares of Navigation Common Stock are not traded on any exchange, and there is
no established public trading market for such stock. There are no bid or asked
prices available for shares of Navigation Common Stock.
Management of Navigation is aware of certain transactions in Navigation Common
Stock that have occurred since January 1, 1997. Although the prices of all
transactions are not known, management of Navigation believes that such prices
ranged from $70 to $127 per share of Navigation Common Stock. No assurance can
be given that these trades were effected on an arm's-length basis. Transactions
in shares of Navigation Common Stock are infrequent and are negotiated privately
between persons involved in those transactions.
The following table sets forth applicable last sales prices, and pro
forma equivalents based upon such last sales prices, for shares of SouthTrust
Common Stock as of selected dates.
<TABLE>
<CAPTION>
SouthTrust Navigation
Common Stock Common Stock
Last Sales Price Equivalent(1)
---------------- -------------
<S> <C> <C>
April 30, 1999(2) $ 39.844 $ 442.86
{_________}, 1999(3) $ {_____} $ {____}
</TABLE>
- --------------------
(1) Pro forma equivalents calculated using the last sales price for
SouthTrust Common Stock as of the selected date multiplied by the
Conversion Ratio of 11.1149.
(2) Last trading day preceding public announcement of the proposed
transaction.
(3) Most recent trading date practicable preceding the date of this Proxy
Statement/Prospectus.
See "MARKET PRICE AND DIVIDEND INFORMATION RESPECTING SHARES OF
SOUTHTRUST COMMON STOCK AND SHARES OF NAVIGATION COMMON STOCK" at p. 41.
RESALE OF SHARES OF SOUTHTRUST COMMON STOCK RECEIVED IN THE MERGER
SouthTrust has registered the shares of SouthTrust Common Stock to be
issued pursuant to the Merger Agreement under the Securities Act. Therefore you
may sell such shares without restriction unless you are deemed to be an
"affiliate" (as defined under the Securities Act) of Navigation or you become an
affiliate of SouthTrust. If you are an affiliate, then you can resell the shares
of SouthTrust Common Stock only pursuant to an effective registration statement,
pursuant to Rule 145 under the Securities Act, or in transactions otherwise
exempt from registration under the Securities Act. SouthTrust will not be
obligated, and does not intend, to register under the Securities Act for resale
by such shareholders, the shares of SouthTrust Common Stock issued pursuant to
the Merger to shareholders of Navigation who are affiliates.
Each affiliate of Navigation has executed and delivered to SouthTrust a
written agreement restricting the transfer of shares of SouthTrust Common Stock
received by such affiliate in the Merger. Affiliates must resell their
SouthTrust Common Stock in compliance with the securities laws, and may not sell
their SouthTrust Common Stock until such time as financial results covering at
least thirty (30) days of combined operations of Navigation and SouthTrust have
been published (within the meaning of Section 201.01 of the Commission's
Codification of Financial Reporting Policies).
See "THE MERGER - Resale of Shares of SouthTrust Common Stock Received
in the Merger" at p. 27.
DIFFERENCES IN RIGHTS OF SHAREHOLDERS OF NAVIGATION
Once the Merger occurs, shareholders of Navigation will become
stockholders of SouthTrust. As a result, your rights as a shareholder, which now
are governed by Texas corporate law and the Articles of Association and Bylaws
of Navigation, will be governed by Delaware corporate law and the Restated
Certificate of Incorporation and Bylaws of SouthTrust. Due to certain
differences between the provisions of Texas corporate law and Delaware corporate
law and of the Articles of Incorporation and Bylaws of Navigation and the
Restated Certificate of Incorporation and Bylaws of SouthTrust, your current
rights will change after the Merger. Some of these differences include
anti-takeover provisions. See "COMPARISON OF SHARES OF SOUTHTRUST COMMON STOCK
AND SHARES OF NAVIGATION COMMON STOCK" at p. 43.
10
<PAGE> 17
ACCOUNTING TREATMENT
SouthTrust will account for the Merger as a pooling of interests. See
"THE MERGER - Accounting Treatment" at p. 28.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
We have made certain forward-looking statements in this document that
are subject to risks and uncertainties. Forward-looking statements include the
information concerning the financial condition, results of operations, plans,
objectives, future performance and business of each of SouthTrust and Navigation
set forth in the following sections: "SUMMARY -- The Merger," "SUMMARY --
Comparative Stock Prices," "THE MERGER -- Background of and Reasons for the
Merger," "THE MERGER -- Effective Time of the Merger," "THE MERGER -- Business
and Management of Navigation Following the Merger; Plans for Business of
Navigation," "Market Price and Dividend Information Respecting Shares of
SouthTrust Common Stock and Shares of Navigation Common Stock" and "Navigation
Management's Discussion and Analysis of Financial Condition and Results of
Operations." Forward-looking statements include statements preceded by, followed
by or that include the words "believes," "expects," "anticipates," "estimates,"
or similar expressions. For those statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. You should understand that the following
important factors, in addition to those discussed elsewhere in this document and
the documents we incorporate by reference, could affect the future results of
SouthTrust and Navigation and could cause those results to differ materially
from those expressed in our forward-looking statements: we may not fully realize
anticipated operating efficiencies; we may lose deposits, customers or revenues
after the merger; competitive pressure in the banking industry, negative changes
in general economic conditions or changes in banking regulation could affect our
operations; changes in interest rates could reduce our operating margins; and
changes may occur in the securities markets.
EQUIVALENT SHARE DATA
The following summary presents comparative historical and pro forma
unaudited per share data for both SouthTrust and Navigation. The pro forma
amounts assume the Merger had been effective during the periods presented and
had been accounted for as a pooling of interests. SouthTrust's pro forma amounts
represent the combined pro forma results, and Navigation pro forma equivalent
amounts are computed by multiplying the combined pro forma amounts by a factor
of 11.1149, to reflect the Conversion Ratio in the Merger. The data presented
should be read in conjunction with the historical financial statements and the
related notes thereto included elsewhere herein or incorporated by reference
herein.
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
-------------------------------- ---------------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income per diluted common share:
SouthTrust............................ $ 2.25 $ 2.03 $ 1.79 $ 0.62 $ 0.54
Navigation............................ 37.27 23.11 15.78 5.77 5.91
SouthTrust pro forma combined......... 2.25 2.03 1.79 0.62 0.54
Navigation pro forma equivalent....... 25.00 22.58 19.90 6.89 6.01
Cash dividends per common share:
SouthTrust............................ $ 0.76 $ 0.67 $ 0.59 $ 0.22 $ 0.19
Navigation............................ 0.00 0.00 0.00 0.00 0.00
SouthTrust pro forma combined(1)...... 0.76 0.67 0.59 0.22 0.19
Navigation pro forma equivalent....... 8.42 7.42 6.54 2.44 2.11
Book value per common share (period end):
SouthTrust............................ $ 16.38 $ 14.28 $ 12.03 $ 16.72 $ 15.49
Navigation............................ 166.34 128.83 105.73 172.11 134.96
SouthTrust pro forma combined......... 16.37 14.27 12.02 16.72 15.48
Navigation pro forma equivalent....... 181.98 158.65 133.63 185.79 172.11
</TABLE>
- --------------------
(1) SouthTrust pro forma combined dividends represent historical cash
dividends of SouthTrust.
11
<PAGE> 18
SELECTED FINANCIAL DATA
The following tables set forth certain selected historical consolidated
financial information for Navigation and SouthTrust. The historical income
statement data included in the selected financial data for the five most recent
fiscal years are derived from audited consolidated financial statements of
Navigation and SouthTrust. The financial data for the interim periods ended
March 31, 1999 and March 31, 1998 are derived from the unaudited historical
financial statements of SouthTrust and Navigation, respectively, and reflect in
the respective opinions of management of SouthTrust and Navigation, all
adjustments (consisting only of recurring adjustments) necessary for a fair
presentation of such data. This information should be read in conjunction with
the financial statements of Navigation and consolidated financial statements of
SouthTrust, and the related notes thereto, contained in documents included
elsewhere in this Proxy Statement/Prospectus or incorporated herein by
reference. See "FINANCIAL STATEMENTS OF NAVIGATION" at p. F-i and "WHERE YOU CAN
FIND MORE INFORMATION" at p. 69.
SOUTHTRUST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(in thousands, except per share data):
Interest income ..................... $ 2,557,462 $ 2,232,252 $ 1,804,220 $ 1,484,623 $ 1,108,612
Interest expense .................... 1,386,256 1,186,079 938,194 791,423 501,067
----------- ----------- ----------- ----------- -----------
Net interest income ............... 1,171,206 1,046,173 866,026 693,200 607,545
Provision for loan losses ........... 94,796 90,613 90,027 61,286 44,984
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses ......... 1,076,410 955,560 775,999 631,914 562,561
Non-interest income ................. 385,842 270,507 254,809 208,664 184,778
Non-interest expense ................ 914,443 748,216 643,298 536,534 485,999
----------- ----------- ----------- ----------- -----------
Income before income taxes .......... 547,809 477,851 387,510 304,044 261,340
Income taxes ........................ 179,199 171,143 132,807 105,039 88,338
----------- ----------- ----------- ----------- -----------
Net income ........................ $ 368,610 $ 306,708 $ 254,703 $ 199,005 $ 173,002
=========== =========== =========== =========== ===========
Net income per diluted common share . $ 2.25 $ 2.03 $ 1.79 $ 1.57 $ 1.43
Cash dividends declared
per common share .................. 0.76 0.67 0.59 0.53 0.45
Average diluted common shares
outstanding (in thousands) ........ 164,148 151,008 142,154 126,687 121,157
BALANCE SHEET DATA (at period end)
(in thousands):
Total assets ........................ $38,133,774 $30,906,445 $26,223,193 $20,787,024 $17,632,059
Total loans, net .................... 27,317,506 22,474,785 19,331,132 14,655,162 12,121,907
Total deposits ...................... 24,839,892 19,586,584 17,305,493 14,575,077 12,801,239
Total stockholders' equity .......... 2,738,266 2,194,641 1,734,892 1,430,870 1,135,268
<CAPTION>
Three Months
Ended March 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
INCOME STATEMENT DATA
(in thousands, except per share data):
Interest income ..................... $ 670,767 $ 597,462
Interest expense .................... 354,263 324,112
----------- -----------
Net interest income ............... 316,504 273,350
Provision for loan losses ........... 30,362 17,855
----------- -----------
Net interest income after
provision for loan losses ......... 286,142 255,495
Non-interest income ................. 111,064 88,118
Non-interest expense ................ 242,643 212,506
----------- -----------
Income before income taxes .......... 154,563 131,107
Income taxes ........................ 50,039 44,655
----------- -----------
Net income ........................ $ 104,524 $ 86,452
=========== ===========
Net income per diluted common share . $ 0.62 $ 0.54
Cash dividends declared
per common share .................. 0.22 0.19
Average diluted common shares
outstanding (in thousands) ........ 168,587 159,998
BALANCE SHEET DATA (at period end)
(in thousands):
Total assets ........................ $39,016,118 $32,697,604
Total loans, net .................... 28,261,864 23,548,847
Total deposits ...................... 24,552,464 20,532,916
Total stockholders' equity .......... 2,797,390 2,485,807
</TABLE>
12
<PAGE> 19
NAVIGATION BANK
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
------------------------------------------------------------- -----------------------
1998 1997 1996 1995 1994 1999 1998
--------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(in thousands, except per share data):
Interest income................... $ 6,337 $ 5,318 $ 4,268 $ 3,391 $ 2,468 $ 1,570 $ 1,431
Interest expense.................. 1,842 1,461 1,203 941 648 448 412
----------- --------- --------- ---------- ---------- -------- ----------
Net interest income............. 4,495 3,857 3,065 2,450 1,820 1,122 1,019
Provision for loan losses......... 80 170 90 60 30 10 45
----------- --------- --------- ---------- ---------- -------- ----------
Net interest income after
provision for loan losses....... 4,415 3,687 2,975 2,390 1,790 1,112 974
Non-interest income............... 1,438 767 612 431 299 202 206
Non-interest expense.............. 3,396 2,866 2,567 2,059 1,589 933 783
----------- --------- --------- ---------- ---------- -------- ----------
Income before income taxes........ 2,457 1,588 1,020 762 500 381 397
Income taxes...................... 841 586 336 260 181 131 141
----------- --------- --------- ---------- ---------- -------- ----------
Net income ....................... $ 1,616 $ 1,002 $ 684 $ 502 $ 319 $ 250 $ 256
=========== ========= ========= ========== ========== ======== ==========
Net income per diluted common
share........................... $ 37.27 $ 23.11 $ 15.78 $ 11.59 $ 7.36 $ 5.77 $ 5.91
Cash dividends declared
per common share................ 0 0 0 0 0 0 0
Average diluted common shares
outstanding (in thousands)...... 43 43 43 43 43 43 43
BALANCE SHEET DATA (at period end)
(in thousands):
Total assets...................... $ 80,322 $ 68,745 $ 63,466 $ 45,286 $ 40,783 $ 80,809 $ 74,533
Total loans, net of unearned
income.......................... 54,216 49,358 38,573 28,611 20,388 55,498 49,839
Total deposits.................... 72,156 62,325 58,131 40,726 36,680 72,705 67,903
Total stockholders' equity........ 7,209 5,584 4,583 3,898 3,372 7,460 5,850
</TABLE>
13
<PAGE> 20
SELECTED PRO FORMA INFORMATION
The following table sets forth certain unaudited pro forma combined
condensed financial information for SouthTrust and Navigation giving effect to
the Merger. The unaudited pro forma combined condensed financial presentation is
presented for information purposes only and is not necessarily indicative of the
combined financial position or results of operations which would actually have
occurred if the transaction had been consummated in the past or which may be
obtained in the future. This information should be read in conjunction with the
financial statements of Navigation and consolidated financial statements of
SouthTrust and the related notes thereto included elsewhere in this Proxy
Statement/Prospectus or incorporated in this Proxy Statement/Prospectus by
reference. See "FINANCIAL STATEMENTS OF NAVIGATION" at p. F-i and "WHERE YOU CAN
FIND MORE INFORMATION" at p. 69.
PRO FORMA COMBINED INFORMATION
SOUTHTRUST CORPORATION AND NAVIGATION BANK
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
----------------------------------- ----------------------
1998 1997 1996 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(in thousands, except per share data):
Interest income....................... $2,563,799 $2,237,570 $1,808,488 $672,337 $598,893
Interest expense...................... 1,388,098 1,187,540 939,397 354,711 324,524
---------- ---------- ---------- -------- --------
Net interest income................. 1,175,701 1,050,030 869,091 317,626 274,369
Provision for loan losses............. 94,876 90,783 90,117 30,372 17,900
---------- ---------- ---------- -------- --------
Net interest income after provision
for loan losses..................... 1,080,825 959,247 778,974 287,254 256,469
Non-interest income................... 387,280 271,274 255,421 111,266 88,324
Non-interest expense.................. 917,839 751,082 645,865 243,576 213,289
---------- ---------- ---------- -------- --------
Income before income taxes............ 550,266 479,439 388,530 154,944 131,504
Income taxes.......................... 180,040 171,729 133,143 50,170 44,796
---------- ---------- ---------- -------- --------
Net income.......................... $ 370,226 $ 307,710 $ 255,387 $104,774 $ 86,708
========== ========== ========== ======== ========
Net income per diluted common share... $ 2.25 $ 2.03 $ 1.79 $ 0.62 $ 0.54
Average diluted common shares
outstanding (in thousands)............ 164,626 151,486 142,632 169,065 160,476
BALANCE SHEET DATA
(in millions)
Total assets.......................... $ 38,214 $ 30,975 $ 26,286 $ 39,097 $ 32,773
Total loans, net of unearned income... 27,372 22,524 19,370 28,317 23,599
Total deposits........................ 24,912 19,649 17,364 24,626 20,601
Total stockholders' equity............ 2,745 2,201 1,740 2,804 2,492
</TABLE>
14
<PAGE> 21
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the shareholders
of Navigation in connection with the solicitation of proxies by the Board of
Directors of Navigation for use at the Special Meeting. Each copy of this Proxy
Statement/Prospectus mailed to the shareholders of Navigation is accompanied by
a form of proxy for use at the Special Meeting. The Special Meeting is scheduled
to be held on {____________}, 1999 at { }{ }.m., local time, at { }.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the shareholders of Navigation will be asked to
consider and vote upon: (i) a proposal to adopt the Merger Agreement, (ii) a
proposal to transact such other business as is incident to the conduct of the
Special Meeting.
RECORD DATE
The close of business on{ }, 1999 has been fixed as the Record Date for
the purposes of determining the identity of the shareholders of Navigation who
will be entitled to notice of and to vote at the Special Meeting.
VOTING AT THE SPECIAL MEETING
The presence, either in person or by proxy, of the holders of a
majority of the issued and outstanding shares of Navigation Common Stock
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting. On the Record Date, there were 43,345 shares of Navigation
Common Stock issued and outstanding held by approximately 43 shareholders of
record.
Each share of Navigation Common Stock is entitled to one vote with
respect to all matters presented at the Special Meeting. Adoption of the Merger
Agreement requires the affirmative vote of two thirds of the outstanding shares
of Navigation Common Stock entitled to vote thereon.
A certain number of shareholders of Navigation, who collectively own an
aggregate of 39, 816.5 shares of Navigation Common Stock, representing
approximately 91.86 % of the issued and outstanding shares of Navigation Common
Stock, have executed a voting and stock restriction agreement (the "Voting and
Stock Restriction Agreement"), pursuant to which each such shareholder granted
an irrevocable proxy to vote their shares of Navigation Common Stock to Mr.
Jerry Winters and Mr. William Woodby (the "Co-Voting Representatives"). Subject
to the terms and conditions of the Voting Agreement, the Co-Voting
Representatives have agreed to vote the shares of Navigation Common Stock over
which they have voting control in favor of the approval and adoption of the
Merger Agreement and the transactions contemplated therein. If the Co-Voting
Representatives vote in favor of the adoption of the Merger Agreement, the
Merger Agreement will be adopted and the Merger will be approved at the Special
Meeting. Accordingly, it is expected that the Merger Agreement will be adopted
and the Merger will be approved at the Special Meeting.
If you are one of the shareholders who executed the Voting and Stock
Restriction Agreement, you have granted an irrevocable proxy to the Co-Voting
Representatives. This means that the Co-Voting Representatives will be voting
your shares of Navigation Common Stock at the Special Meeting. Under the terms
of the Voting and Stock Restriction Agreement, you can not revoke this proxy.
You are also not entitled or required to complete the enclosed proxy card which
accompanies this Proxy Statement/Prospectus.
If you are a shareholder of Navigation who has not executed the Voting
and Stock Restriction Agreement you will be entitled to vote your own shares of
Navigation Common Stock at the Special Meeting. Accordingly if you properly
complete and return a proxy in the form enclosed, in time for the voting at the
Special Meeting, with instructions specified on the proxy, then your shares will
be voted in accordance with such instructions. If you do not specify
instructions, then your signed proxy will be voted FOR approval of the Merger
Agreement. You may revoke your proxy at any time prior to its exercise (1) by
filing with the Secretary of Navigation either an
15
<PAGE> 22
instrument revoking the proxy or a duly executed proxy bearing a later date or
(2) by attending the Special Meeting and voting in person. Attendance at the
Special Meeting will not by itself revoke a proxy.
Under the Texas Business Corporation Act (the "TBCA"), if a shareholder
of Navigation (i) does not vote "FOR" the Merger and (ii) otherwise complies
with Article 5.12 of the TBCA relating to the exercise dissenter's rights, such
shareholder shall be entitled to statutory appraisal rights for his shares of
Navigation Common Stock. If the Merger is consummated, such shares will be paid
for in cash pursuant to the process described in "THE MERGER - Rights of Dissent
Appraisal" at p. 32. Shareholders of Navigation who exercise their dissenters'
rights in connection with the Merger and therefore receive cash, will encounter
income tax treatment different from the treatment for shareholders of Navigation
who receive SouthTrust Common Stock in the Merger. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES" at p. 35.
As of the date of this Proxy Statement/Prospectus, other than the
proposal that the shareholders of Navigation consider and vote to adopt the
Merger Agreement, the Board of Directors of Navigation is not aware of any other
matter to be presented for action by the shareholders of Navigation at the
Special Meeting. If, however, any other matters not now known are incident to
the conduct of and properly brought before the Special Meeting, the Co-Voting
Representatives will vote the proxies upon such matters according to its
discretion and best judgment.
SOLICITATION OF PROXIES
This proxy solicitation is being made by the Board of Directors of
Navigation. In addition to the use of the mail, proxies may be solicited by
telephone, telegraph or personally by the directors, officers and employees of
Navigation, who will receive no extra compensation for their services.
Navigation will reimburse banks, brokerage firms and other custodians, nominees
and fiduciaries for reasonable expenses incurred by them in sending proxy
soliciting materials to the beneficial owners of shares of Navigation Common
Stock.
EFFECT OF ABSTENTIONS AND "BROKER NON-VOTES"
At the Special Meeting, abstentions and broker non-votes will be
counted for purposes of determining the presence or absence of a quorum. A
"broker non-vote" occurs with respect to a given proposal when a broker holding
shares of Navigation Common Stock in street name returns an executed proxy (or
voting directions) which indicates that such broker does not have discretionary
authority to vote on such proposal.
In determining whether the proposal to adopt the Merger Agreement has
received the requisite number of affirmative votes, abstentions and broker
non-votes will have the same effect as a vote against such proposal, because
adoption of the Merger Agreement requires the affirmative vote of two thirds of
the outstanding shares of Navigation Common Stock entitled to vote thereon.
16
<PAGE> 23
THE MERGER
The terms of the Merger are set forth in the Merger Agreement. The
description of the Merger which follows summarizes the principal
provisions of the Merger Agreement, is not complete and is qualified in
all respects by reference to the Merger Agreement, a copy of which is
attached as Exhibit A , and certain provisions of the Texas Business
Corporation Act relating to the rights of dissenting shareholders, a
copy of which is attached hereto as Exhibit C. All Navigation
shareholders are urged to read the Merger Agreement and the Exhibits in
their entirety.
GENERAL
The Merger Agreement has been approved by the Boards of Directors of
Navigation, SouthTrust, ST-Sub and ST-Bank, by SouthTrust as the sole
shareholder of ST-Sub and by ST-Sub as the sole shareholder of ST-Bank.
The stockholders of SouthTrust are not required to approve the Merger.
If the shareholders of Navigation approve the Merger Agreement at the
Special Meeting, if required regulatory approvals are received and if other
conditions are satisfied, then Navigation will be merged with and into ST-Bank
pursuant to the Merger Agreement, the Texas Banking Code and the National Bank
Act, and ST-Bank will be the Surviving Corporation. At the Effective Time of the
Merger, pursuant to the Merger Agreement, SouthTrust is to issue up to a total
of 481,775 shares of SouthTrust Common Stock for all of the issued and
outstanding shares of Navigation Common Stock (assuming that no dissenters'
rights of appraisal are exercised in the Merger). As of the date of the Merger
Agreement, a total of 43,345 shares of Navigation Common Stock were issued and
outstanding.
At the Effective Time of the Merger, each share (except (1) shares held
by Navigation or by SouthTrust or any of its subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted, and
(2) shares dissenting from approval of the Merger Agreement) of Navigation
Common Stock, will become and be converted into the right to receive 11.1149
shares of SouthTrust Common Stock, as the same may be adjusted pursuant to the
terms of the Merger Agreement. See "THE MERGER - Effect of the Merger on Shares
of Navigation Common Stock" at p. 25.
If the average of the daily last sales prices of shares of SouthTrust
Common Stock (the "Average Closing Price") as reported on NASDAQ for the twenty
consecutive full trading days in which such shares are traded on NASDAQ ending
on the date which is forty-five (45) days prior to the scheduled closing (the
"Determination Date") is less than $33.52, then Navigation will have the right,
during the three day period following the Determination Date, to elect to
terminate the Merger Agreement unless SouthTrust elects to increase the
Conversion Ratio in the manner described under "THE MERGER - Possible Conversion
Ratio Adjustment" at p. 26.
The Conversion Ratio, including the number of shares of SouthTrust
Common Stock issuable in the Merger, is also subject to appropriate adjustment
in the event of certain stock splits, stock dividends, reclassifications or
similar distributions effected by SouthTrust.
No fractional shares of SouthTrust Common Stock will be issued in the
Merger, and, instead, each holder of shares of Navigation Common Stock that
otherwise would have been entitled to receive a fractional share of SouthTrust
Common Stock will be entitled to receive a cash payment in an amount equal to
(1) the fractional interest of a share of SouthTrust Common Stock to which such
holder otherwise would have been entitled, multiplied by (2) the last sales
price of SouthTrust Common Stock as reported by NASDAQ on the last trading day
preceding the Effective Time of the Merger.
The Merger will become effective on the date and at the time on which
the Merger is deemed effective by the Comptroller. The Merger Agreement provides
that, unless otherwise mutually agreed upon in writing, the parties to the
Merger Agreement will use their reasonable efforts to cause the effective time
to occur as soon as practicable following the later to occur of (1) the
effective date (including expiration of any applicable waiting period) of the
last required consent of any regulatory authority having authority over and
approving or exempting the Merger, and (2) the date on which the shareholders of
Navigation approve the Merger Agreement, or such other time as the parties may
agree. See "THE MERGER - Effective Time of the Merger" at p. 26.
17
<PAGE> 24
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
From time to time over the past several years, the directors of
Navigation had discussions regarding the prospects of Navigation, conditions in
the community banking market in Texas, and the merger activity among financial
institutions in the state. During the spring of 1998, Navigation participated in
a number of meetings at which representatives of several local Texas community
banks (the "Bank Group") were present. The purpose of the meetings was to
investigate the possibility of a business combination involving all of the banks
so represented and a subsequent initial public offering of the stock of the
resultant bank. Representatives of Hoefer and Arnett Incorporated, investment
bankers ("Hoefer"), were invited by the Bank Group to provide advice in
connection with the proposed business combination and the subsequent initial
public offering. During the course of the meetings, Hoefer made presentations to
the Bank Group concerning the current market for community banks in Texas and
the Hoefer representatives and the Bank Group discussed the financial
institutions industry in Texas, the range of prices that had been paid for sales
of financial institutions over recent periods, the desire of the boards of
directors of each member of the Bank Group to provide liquidity for their
respective capital stock, the risk that the prices being received for sales of
financial institutions in the prevailing market could decline over the ensuing
years, the trend in the financial institutions industry for consolidation, the
increasingly competitive banking environment in which the members of the Bank
Group operate, the increased competition in both deposit and lending activities,
and the inherent risk in relying on future growth and market penetration by each
member of the Bank Group separately.
By mid-summer of 1998, at least one member of the Bank Group, the
largest member, had decided to pursue alternative combination and growth
strategies. During the course of the meetings of the Bank Group, Navigation had
become more aware of the opportunities that bank mergers presented to
Navigation, that financial institutions might have an interest in pursuing a
transaction with Navigation and of the market value of Navigation, as determined
by Hoefer in the preliminary analysis conducted by Hoefer in connection with the
potential initial public offering. Accordingly, while not making any final
decision whether any transaction involving a sale of Navigation should be
entered into, the Board of Directors of Navigation authorized Hoefer to
represent Navigation in soliciting indications of interest that might warrant
serious consideration and potentially result in an agreement to merge or
Navigation otherwise being acquired. From August 1998 to March 1999, Hoefer
solicited interest from a variety of larger financial institutions whose
operating strategy included the acquisition of Texas banks. As a part of this
process, SouthTrust conducted an initial analysis of Navigation in September and
October, 1998.
On March 15, 1999, Navigation received an indication of interest from
SouthTrust. At a meeting of the Board of Directors of Navigation held on March
18, 1999, Mr. Mecredy of Hoefer reviewed Hoefer's solicitation process. Mr.
Mecredy indicated that Hoefer initially received indications of interest from
approximately seven (7) financial institutions, and, upon further negotiations,
four (4) institutions, including SouthTrust, expressed specific interest in
providing a proposal for the acquisition of Navigation. Two (2) of the proposals
provided for, among other things, a proposed exchange ratio of the acquirer's
shares for Navigation Common Stock with the transaction structured to provide
the shareholders of Navigation with a tax-free merger and two (2) proposals
provided for a cash purchase price. Hoefer reviewed the four (4) proposals with
the Board of Directors of Navigation. Following the presentation, the Board of
Directors decided to authorize Hoefer to continue discussions with SouthTrust
regarding a possible acquisition of Navigation by SouthTrust. The Board of
Directors elected to pursue a transaction with SouthTrust because the indicated
price and terms reflected in the SouthTrust proposal were superior to the terms
proposed by the other three (3) interested parties.
In April 1999, representatives of SouthTrust and representatives of
Navigation negotiated the terms of a definitive agreement. The agreement was
reviewed by the Board at a meeting held on April 15, 1999. At this meeting,
legal counsel reviewed generally for the Board the fiduciary obligations of
directors in sales of financial institutions and commented on the form of
definitive agreement. Prior to the meeting, representatives of Hoefer had
provided a negative assurance letter to the Board of Directors which in essence
opined that, while Hoefer had not completed all of its analysis, Hoefer had not
discovered any fact which would prevent Hoefer from rendering an oral opinion
that the consideration to be paid by SouthTrust for the shares of Navigation
Common Stock is fair, from a financial point of view, to the shareholders of
Navigation. The Board then unanimously approved the Agreement and the
transactions contemplated thereby. Management of Navigation also was authorized
to execute the Agreement, which was signed by SouthTrust and Navigation on May
3, 1999.
18
<PAGE> 25
The Board of Directors of Navigation believes that the Merger is in the
best interest of the shareholders of Navigation. The Board of Directors
considered a number of factors in deciding to approve and recommend the terms of
the Merger to the shareholders of Navigation, including the following:
- terms of the proposed transaction;
- the financial condition, results of operations, and future
prospects of Navigation;
- the value of the consideration to be received by the
shareholders of Navigation relative to the book value and
earnings per share of Navigation Common Stock;
- the competitive and regulatory environment for financial
institutions generally;
- the fact that the Merger will enable the shareholders of
Navigation to exchange their shares of Navigation Common Stock
(for which there is no established public trading markets) for
shares of common stock of a larger and more diversified
entity, the stock of which is more widely held and more
actively traded;
- that the Merger will enable the shareholders of Navigation to
hold stock in a financial institution that has historically
paid cash dividends to its stockholders as compared to
Navigation, which has not paid cash dividends for a
significant period of time;
- the likelihood of receiving the requisite regulatory approval;
- that it is expected that the Merger will be a tax-free
transaction (except with respect to cash received for shares
of Navigation Common Stock in lieu of fractional shares of
SouthTrust Common Stock) for federal income tax purposes; and
- other information.
The Board of Directors also took into account an opinion received from
Hoefer that the consideration to be received by the shareholders of Navigation
in the Merger is fair from a financial point of view. See "- Opinion of
Financial Advisor" at p. 20. The foregoing discussion of the information and
factors considered by the Board of Directors is not intended to be exhaustive of
the factors considered by the directors. The Board of Directors did not assign
any relative or specific weights to the foregoing factors, and individual
directors may have given different weights to different factors.
The 11.1149 shares of SouthTrust's Common Stock to be exchanged for
each share of Navigation Common Stock reflects prices that were negotiated on an
arm's-length basis between representatives of Navigation and representatives of
SouthTrust. There was no affiliation, relationship, understanding or transaction
between Navigation and its representatives, on one hand, and SouthTrust and
ST-Bank, and their representatives, on the other hand, prior to the execution of
the Merger Agreement.
THE MEMBERS OF THE BOARD OF DIRECTORS OF NAVIGATION HAVE UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR, FROM A
FINANCIAL POINT OF VIEW, AND IS IN THE BEST INTEREST OF THE SHAREHOLDERS OF
NAVIGATION. ACCORDINGLY, THE BOARD OF DIRECTORS OF NAVIGATION RECOMMENDS THAT
SHAREHOLDERS OF NAVIGATION VOTE IN FAVOR OF THE MERGER AGREEMENT.
SouthTrust is engaging in the transactions pursuant to the Merger
because the Merger is consistent with its expansion strategy within the southern
United States and because the acquisition of Navigation will augment
SouthTrust's existing market share in the Texas banking market and enhance its
competitive position in such market.
19
<PAGE> 26
OPINION OF FINANCIAL ADVISER
Fairness Opinion of Hoefer & Arnett Incorporated
The Board of Directors of Navigation retained Hoefer & Arnett,
Incorporated ("Hoefer") to render a written opinion (the "Fairness Opinion") as
investment bankers as to the fairness, from a financial point of view, to the
shareholders of Navigation of the terms of the Merger. No limitations were
imposed by the Board of Directors upon Hoefer with respect to the investigations
made or procedures followed in rendering the Fairness Opinion.
A copy of the full text of the Fairness Opinion, dated as of May 25,
1999, which sets forth certain assumptions made, matters considered and limits
on the review undertaken by Hoefer, is attached as Exhibit B to this Proxy
Statement/Prospectus. Shareholders of Navigation are urged to read the Fairness
Opinion in its entirety. The following summary of the procedures and analysis
performed, and assumptions used by Hoefer is qualified in its entirety by
reference to the full text of the Fairness Opinion. The Fairness Opinion is
addressed to the Board of Directors of Navigation only, is directed only to the
financial terms of the Merger and does not constitute a recommendation to any
shareholder of Navigation as to how such shareholder should vote at the Special
Meeting.
In arriving at its opinion, Hoefer reviewed and analyzed, among other
things, the following:
- the Merger Agreement;
- Annual Reports to the Stockholders of SouthTrust for
the years ended December 31, 1997 and
December 31, 1998;
- Quarterly Call Reports, filed with the Federal
Deposit Insurance Corporation, of ST-Bank and
Navigation for the quarters ended March 31, 1999,
December 31, 1998, September 30, 1998 and June 30,
1998;
- Quarterly Reports on Form 10-Q of SouthTrust filed
with the Commission for the quarters ended March 31,
1999, September 30, 1998, June 30, 1998 and March 31,
1998;
- certain other publicly available financial and other
information concerning SouthTrust and Navigation;
- the historical market prices and trading activity of
shares of SouthTrust Common Stock;
- publicly available information concerning other banks
and holding companies, the trading markets for their
securities and the nature and terms of certain other
merger transactions Hoefer believed to be relevant to
its inquiry; and
- discussions with senior management of Navigation and
SouthTrust concerning past and current operations,
financial condition and prospects, as well as results
of regulatory examinations.
Hoefer reviewed with senior management of SouthTrust earnings
projections for 1999 through 2003 for SouthTrust, assuming the Merger does not
occur. Hoefer reviewed with senior management of Navigation earnings projections
for 1999 through 2003 for Navigation, assuming the Merger does not occur, as
well as projected operating cost savings expected to be achieved in each such
years resulting from the Merger. Senior management of Navigation prepared such
projections. Certain pro forma financial projections for the years 1999 through
2003 for the Surviving Corporation were derived by Hoefer based partially upon
the information discussed above, as well as Hoefer's assessment of general
economic, market and financial conditions. In certain cases, such combined pro
forma financial projections included operating cost savings derived by Hoefer
partially based upon the projections discussed above to be realized in the
Merger.
In conducting its review and in arriving at its opinion, Hoefer relied
upon and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available, and did not attempt to
independently verify the same. Hoefer relied upon the management of Navigation
as to the reasonableness of the
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<PAGE> 27
financial and operating forecasts, projections and possible operating cost
savings (and the assumptions and bases therefor) provided to it, and Hoefer
assumed that such forecasts, projections and possible operating cost savings
reflect the best currently available estimates and judgments of the management
of Navigation. Hoefer also assumed, without independent verification, that the
aggregate allowances for loan losses for SouthTrust and Navigation are adequate
to cover such losses. Hoefer did not make or obtain any evaluations or
appraisals of the properties of SouthTrust and Navigation, nor did it examine
any individual loan credit files. For purposes of its opinion, Hoefer assumed
that the Merger will have the tax, accounting and legal effects described in the
Merger Agreement and relied, as to legal matters, exclusively on counsel to
Navigation, as to the accuracy of the disclosures set forth in the Merger
Agreement. Hoefer's opinion is limited to the fairness, from a financial point
of view, to the holders of Navigation Common Stock of the terms of the Merger
and does not address Navigation's underlying business decision to proceed with
the Merger.
As more fully discussed below, Hoefer considered such financial and
other factors as Hoefer deemed appropriate under the circumstances, including
among others the following: (i) the historical and current financial position
and results of operations of SouthTrust and Navigation, including interest
income, interest expense, net interest income, net interest margin, provision
for loan losses, non-interest income, non-interest expense, earnings, dividends,
internal capital generation, book value, intangible assets, return on assets,
return on shareholders' equity, capitalization, the amount and type of
non-performing assets, loan losses and the reserve for loan losses, all as set
forth in the financial statements for SouthTrust and Navigation: (ii) the assets
and liabilities of SouthTrust and Navigation, including the loan, investment and
mortgage portfolios, deposits, other liabilities, historical and current
liability sources and costs and liquidity; and (iii) the nature and terms of
certain other merger transactions involving banks and bank holding companies.
Hoefer also took into account its assessment of general economic, market and
financial conditions and its experience in other transactions, as well as its
experience in securities valuation and its knowledge of the banking industry
generally. The Fairness Opinion is necessarily based upon conditions as they
existed and can be evaluated on the date of the Fairness Opinion and the
information made available to Hoefer through that date.
In connection with rendering the Fairness Opinion to the Board of
Directors of Navigation, Hoefer performed certain financial analyses, which are
summarized below. Hoefer believes that its analysis must be considered as a
whole and that selecting portions of such analysis and the factors considered
therein, without considering all factors and analysis, could create an
incomplete view of the analysis and the processes underlying the Fairness
Opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. In its analyses, Hoefer made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond the control of SouthTrust and Navigation. Any
estimates contained in Hoefer's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates. Estimates of values of companies do not purport to be appraisals
or necessarily reflect the prices at which companies or their securities may
actually be sold. Except as described below, none of the financial analyses
performed by Hoefer was assigned a greater significance by Hoefer than any
other.
The financial forecasts and projections of SouthTrust and Navigation
prepared by Hoefer were based on projections provided by the respective
companies as well as Hoefer's own assessment of general economic, market and
financial conditions. All such information was reviewed with the management of
Navigation. Navigation does not publicly disclose internal management financial
forecasts and projections of the type provided to Hoefer in connection with its
review of the Merger. Such forecasts and projections were not prepared with a
view toward public disclosure. The forecasts, projections, and possible
operating cost savings prepared by Hoefer were based on numerous variables and
assumptions, which are inherently uncertain, including, without limitation,
factors related to general economic and market conditions. Accordingly, actual
results could vary significantly from those set forth in such forecasts and
projections.
Summary of Proposal
Hoefer reviewed the terms of the Merger, including the Conversion Ratio
and the aggregate value of the Merger. A purchase price of $438.34 per share, or
a total transaction value of approximately $19 million, represents a price to
stated book value multiple at March 31, 1999 of 2.55, a price to 1998 core
earnings multiple of 16.07 and a price to assets ratio of 23.51%.
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<PAGE> 28
Comparable Transaction Analysis
Hoefer reviewed certain information relating to selected bank mergers
announced between August 1, 1998 and May 21, 1999 in which the acquired banking
organization was located in the state of Texas (the "Comparable Transactions").
This data was obtained from Sheshunoff Information Services, Inc. The high, low
and average book value, earnings and total asset multiples obtained from a
review of the Comparable Transactions were calculated and, the results obtained
by multiplying such high, low and average multiples with certain current
financial information of Navigation, were used to compare the Merger to such
Comparable Transactions to evaluate if the Merger was fair to the shareholders
of Navigation.
On the basis of the Comparable Transactions, Hoefer calculated a range
of purchase prices as a multiple of stated book value for the Comparable
Transactions from a low of 1.16 to a high of 4.40, with an average of 2.16.
These transactions indicated a range of $199.65 per share to $757.28 per share,
with an average of $371.76 per share (based on the equity per share of $172.11
of Navigation as at March 31, 1999).
On the basis of the Comparable Transactions, Hoefer calculated a range
of purchase prices as a multiple of earnings for the Comparable Transactions
from a low of 9.52 to a high of 29.35, with an average of 17.26. These
transactions indicated a range of $259.61 per share to $800.37 per share, with
an average of $470.68 per share (based on Navigation's core earnings per share
of $27.27 fiscal year ended December 31, 1998).
Finally, Hoefer calculated a range of purchase prices as a percentage
of total assets for the Comparable Transactions from a low of 5.82% to a high of
28.96%, with an average of 18.24%. These transactions indicated a range of
$108.50 per share to $539.91 per share, with an average of $340.05 per share
(based on the total assets of Navigation as at March 31, 1999 of $80,809,000).
The price to book value multiple of 2.55 and the price to assets ratio
of 23.51% resulting from the terms of the Merger Agreement are both above the
average price to book value multiple of 2.16 and the average price to assets
ration of 18.24% obtained for the Comparable Transactions. The price to earnings
multiple of 16.07 resulting from the terms of the Merger Agreement is slightly
lower (approximately 7.00%) than the average price to earnings multiple of 17.26
for the Comparable Transactions, which we would expect given that Navigation is
a better performer than the average banking organization in the Comparable
Transactions. The average return on assets and return on equity for the
Comparable Transactions (0.68% and 6.66%, respectively) are much lower than that
of Navigation (1.59% and 18.48%, respectively, based on core earnings of
Navigation for fiscal year ended December 31, 1998).
Additionally, Hoefer reviewed pricing information on fifteen (15)
acquisitions announced by SouthTrust from January 1, 1995 to May 21, 1999. Based
on data obtained from Sheshunoff Information Services, Inc., the average price
to book value multiple for the 15 transactions equaled 2.30, the average price
to earnings multiple equaled 19.25 and the average price as a percentage of
total assets equaled 22.07%. The price to book value multiple and the price to
assets ratio resulting from the terms of the Merger Agreement are both above the
averages for the previous transactions by SouthTrust. The price to earnings
multiple is lower than the average price to earnings multiple for the previous
transactions by SouthTrust, for the same reason as discussed above.
Present Value Analysis
Hoefer calculated the present value of Navigation assuming that
Navigation remained independent. Based on projected earnings for Navigation for
1999 through 2003 and using a discount rate of 12%, an acceptable discount rate
considering the risk-return relationship most investors would demand for an
investment of this type as of the valuation date, the present value equaled
$349.63 per share of Navigation Common Stock, which is less than the value of
$438.34 per share of Navigation Common Stock agreed to between Navigation and
SouthTrust pursuant to the terms of the Merger Agreement.
Discounted Cash Flow Analysis
Hoefer performed a discounted cash flow analysis to determine
hypothetical present values for a share of Navigation Common Stock as a
five-year investment. Under this analysis, Hoefer considered certain scenarios
for the performance of Navigation's capital stock using an asset growth rate of
10.00%, a return on average assets of
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1.60%, a multiple of 2.55 times book value and 14.08 times earnings as the
terminal values for Navigation's capital stock. A discount rate of 12% was
applied to these growth and terminal value scenarios. This discount rate, growth
rate and terminal values were chosen based upon what Hoefer, in its judgment,
considered to be appropriate taking into account, among other things,
Navigation's past and present performance, the general level of inflation, rates
of return for fixed income and equity securities in the marketplace generally
and for companies with similar risk profiles. In the scenarios considered, the
present value of a share of Navigation Common Stock was calculated to be less
than that of the current offer of SouthTrust. Thus, Hoefer's discounted cash
flow analysis indicated that shareholders of Navigation would be in a better
financial position by receiving the consideration offered in the Merger rather
than continuing to hold shares of Navigation Common Stock.
Contribution Analysis
Hoefer reviewed the relative contributions in terms of various balance
sheet items, net income and market capitalization to be made by Navigation and
SouthTrust to the combined institution based on (i) the balance sheet at March
31, 1999, and (ii) estimated 1999 earnings. The income statement and balance
sheet components analyzed included the total assets, total loans (net of
unearned income), total deposits, shareholders' equity and net income. This
analysis showed that, while the shareholders of Navigation would own
approximately 0.29% of the aggregate outstanding shares of the combined
institution based on the Conversion Ratio of 11.1149, Navigation was
contributing 0.21% of total assets, 0.20% of total loans (net of unearned
income), 0.30% of total deposits, 0.27% of shareholders' equity, and 0.31% of
the estimated earnings for the fiscal year ending December 31, 1999.
Pro Forma Analysis
Hoefer compared the changes in the amount of earnings, book value and
dividends attributable to one share of Navigation Common Stock before the Merger
with the amounts attributable to the shares of SouthTrust Common Stock for which
such shares of Navigation Common Stock would be exchanged under the Merger
Agreement.
Hoefer's analysis utilized a Conversion Ratio of 11.1149, and included
pre-tax merger savings of $250,000 in the years 2000 through 2003. On an
earnings per share basis, the shareholders of Navigation are projected to
experience dilution ranging from 8.89% to 9.22%. On a book value per share
basis, the shareholders of Navigation are projected to experience appreciation
of 1.63% in 1999, 0.58% in 2000 and dilution ranging from 0.36% to 1.92% in the
years 2001 through 2003. Finally, on a dividend per share basis, the
shareholders of Navigation are projected to receive dividends per share ranging
from $0.88 per share to $1.24 per share as opposed to no dividends on a
stand-alone basis. Although the pro forma analysis shows dilution with respect
to earnings per share and equity per share, it is our opinion, that the
comparable transaction analysis, discounted cash flow analysis, contribution
analysis and the dividend per share improvement clearly outweigh such pro forma
analysis.
Stock Trading History
Hoefer reviewed and analyzed the historical trading prices and volumes
for SouthTrust Common Stock on a monthly basis from February 1, 1998 to May 21,
1999. The SouthTrust Common Stock price has ranged from a low of $32.375 per
share to a high of $43.50 per share. The stock price to trailing 12 months
earnings per share has ranged from a low of 15.1 to a high of 20.8, with an
average of 17.94. The stock price to book value has ranged from a low of 2.07 to
a high of 2.93, with an average of 2.47. The volume of shares traded during a
one month period has ranged from 8,845,900 to 37,122,000 indicating an active
market for shares of SouthTrust Common Stock.
Other Analysis
Hoefer also reviewed selected investment research reports on and
earnings estimates for SouthTrust. In addition, Hoefer prepared an overview of
historical financial performance of both Navigation and SouthTrust.
The opinion expressed by Hoefer was based upon market, economic and
other relevant considerations as they existed and have been evaluated as of the
date of the Fairness Opinion. Events occurring after the date of issuance of the
Fairness Opinion, including but not limited to, changes affecting the securities
markets, the results of operations or material changes in the assets or
liabilities of SouthTrust or Navigation could materially affect the assumptions
used in preparing the Fairness Opinion.
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Financial Advisory Fees
Pursuant to an engagement letter dated March 26, 1999, Navigation
engaged Hoefer to introduce to Navigation an authorized representative of
SouthTrust for the purpose of effecting a merger. In addition, Navigation,
engaged Hoefer to review the terms of the transaction and to render a fairness
opinion in connection with the Merger for $190,000 including all out-of-pocket
expenses.
INTERESTS OF CERTAIN NAMED PERSONS IN THE MERGER
Certain members of management of Navigation and of the Board of
Directors of Navigation have interests in the Merger that are in addition to any
interests they may have as shareholders of Navigation generally. These interests
include, among others, provisions in the Merger Agreement relating to
indemnification of Navigation's directors and officers and certain employee
benefits, as described below.
SouthTrust has agreed in the Merger Agreement that after the Effective
Time, it will indemnify, defend and hold harmless each person entitled to
indemnification from Navigation against all liabilities arising out of actions
or omissions occurring at or after the Effective Time of the Merger to the same
extent and subject to the same conditions as officers, directors, and employees
of SouthTrust as set forth in SouthTrust's Restated Certificate of Incorporation
and Bylaws and by applicable law.
Following the Effective Time of the Merger SouthTrust has agreed that
the officers and employees of Navigation who SouthTrust or any of its affiliates
employs will be eligible to participate, subject to certain exceptions, in the
employee benefit plans of SouthTrust, including welfare and fringe benefit
plans, on the same basis as and subject to the same conditions as apply to any
newly-hired employee of SouthTrust. For more details on the exceptions, see "THE
MERGER - Business and Management of Navigation following the Merger; Plans for
Business of Navigation" at p. 34.
SouthTrust's banking subsidiary, ST-Bank, and William C. Woodby, the
President and Chief Executive Officer of Navigation, have entered into an
employment agreement (the "Employment Agreement"), dated May 3, 1999, which
shall become effective at the Effective Time of the Merger. The Employment
Agreement provides that upon the Effective Time of the Merger ST-Bank shall
employ Mr. Woodby for a period of one year and shall pay him an aggregate annual
base salary at a rate of $169,250 per annum. Under the Employment Agreement, Mr.
Woodby shall be entitled to participate on the same basis as other similarly
situated employees of SouthTrust and its affiliates in all incentive and benefit
programs or arrangements made available by SouthTrust and its affiliates to such
employees. The Employment Agreement also provides for particular benefits
including vacation and business expenses. In the event that the Employment
Agreement is terminated by ST-Bank for Cause (as defined in the Employment
Agreement), by Mr. Woodby other than for Good Reason (as defined in the
Employment Agreement) or as a result of Mr. Woodby's death or disability, then
ST-Bank shall not be further obligated to make payments or provide benefits to
Mr. Woodby except for earned but unpaid or unreimbursed amounts and group health
coverage required to be continued by applicable law. However, in the event the
Employment Agreement is terminated by Mr. Woodby for Good Reason (as defined in
the Employment Agreement), ST-Bank shall be obligated to pay to Mr. Woodby
during the twelve (12) month period commencing on the date of the Employment
Agreement is terminated (1) the remainder of his base salary that would have
been due to be paid had the Employment Agreement not been terminated early and
(2) such cash amount equal to the amount Mr. Woodby would have to pay each month
to purchase health, life insurance and other welfare benefit coverage. In the
event the Employment Agreement is terminated by ST-Bank other than for Cause,
(as defined in the Employment Agreement), ST-Bank shall be obligated to pay Mr.
Woodby during the twelve (12) month period commencing on the date the Employment
Agreement is terminated (1) the remainder of his base salary that would have
been due to be paid had the Employment Agreement not been terminated early, (2)
such cash amount equal to the amount Mr. Woodby would have to pay each month to
purchase health, life insurance and other welfare benefit coverage, and (3) an
amount, calculated as set forth in the Employment Agreement, in consideration of
the Non-Compete Agreement given by Mr. Woodby, as described below. Furthermore,
Mr. Woodby has agreed that he will not compete with ST-Bank during the
twelve month period following termination for any reason, including for Cause
other than for Cause and other than for Good Reason, of the Employment
Agreement (the "Non-Compete Agreement").
In addition, ST-Bank anticipates entering into an agreement (a
"Stay-Pay Agreement") with each of Paul W. Jury, Jr. and James Newton, both
directors and officers of Navigation that provides that each of Messrs. Jury and
Newton will receive a lump sum payment in the event he continues in the
employment of Navigation until the Merger is consummated. These lump sum
payments are anticipated to be equal to $12,500.00 for each of Messrs.
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Jury and Newton, respectively. In addition, the Stay-Pay Agreements are
anticipated to contain a further provision which provides the payment of a
further $12,500.00 to each of Messrs. Jury and Newton should they remain
employed by the Surviving Corporation from the date the Merger is consummated
until the completion of the data processing and operational conversion. These
payments are each subject to the further condition that in the event that such
payments would not be deductible (in whole or in part) as a result of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), the payments
under the Stay-Pay Agreements will be reduced until no portion of such payment
is not deductible as a result of Section 280G of the Code, except that such a
reduction may not exceed the payments that would otherwise be made under the
applicable Stay-Pay Agreement. The determination as to whether any payment under
a Stay-Pay Agreement will be nondeductible by reason of the provisions of
Section 280G of the Code will be made by tax counsel selected by SouthTrust's
independent auditors.
EFFECT OF THE MERGER ON SHARES OF NAVIGATION COMMON STOCK
Pursuant to the Merger Agreement, Navigation will be merged with and
into ST-Bank pursuant to the Texas Banking Code and the National Bank Act, and
ST-Bank will be the Surviving Corporation. At the Effective Time of the Merger,
and subject to approval of the Merger Agreement by the shareholders of
Navigation at the Special Meeting, the receipt of required regulatory approvals,
and satisfaction of other conditions, pursuant to the Merger Agreement,
SouthTrust is to issue up to a total of 481,775 shares of SouthTrust Common
Stock for all of the issued and outstanding shares of Navigation Common Stock
(assuming that no dissenters' rights of appraisal are exercised in the Merger).
As of the date of the Merger Agreement, a total of 43,345 shares of Navigation
Common Stock were issued and outstanding.
At the Effective Time of the Merger, each share (excluding (1) shares
held by Navigation or by SouthTrust or any of its subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, and (2) shares dissenting from approval of the Merger Agreement) of
Navigation Common Stock, will become and be converted into the right to receive
11.1149 shares of SouthTrust Common Stock, subject to possible adjustment as
described in "THE MERGER - Possible Conversion Ratio Adjustment."
The Conversion Ratio, including the number of shares of SouthTrust
Common Stock issuable in the Merger, is also subject to appropriate adjustment
in the event of certain stock splits, stock dividends, reclassifications or
similar distributions effected by SouthTrust.
No fractional shares of SouthTrust Common Stock will be issued in the
Merger, and, instead, each holder of a share of Navigation Common Stock that
otherwise would have been entitled to receive a fractional share of SouthTrust
Common Stock will be entitled to receive a cash payment (without interest) in an
amount equal to (1) the fractional interest of a share of SouthTrust Common
Stock to which such holder otherwise would have been entitled, multiplied by (2)
the last sales price of SouthTrust Common Stock as reported by NASDAQ on the
last trading day preceding the Effective Time of the Merger.
Since, except as described above, the Conversion Ratio of shares of
SouthTrust Common Stock for shares of Navigation Common Stock is fixed, it will
not compensate shareholders of Navigation for decreases in the market price of
SouthTrust Common Stock which could occur before the Effective Time of the
Merger. Further, except as described above, in the event the market price of
shares of SouthTrust Common Stock decreases after {_________}, 1999, the date of
the Special Meeting, the value of the shares of SouthTrust Common Stock to be
received in the Merger in exchange for the shares of Navigation Common Stock
would decrease below the value prevailing at the time the shareholders of
Navigation consider and act upon the proposal to approve and adopt the Merger
Agreement. However, in the event the market price of shares of the SouthTrust
Common Stock increases, the value of shares of SouthTrust Common Stock to be
received in the Merger in exchange for shares of Navigation Common Stock would
increase. Shareholders of Navigation are advised to obtain current market
quotations for shares of SouthTrust Common Stock. No assurance can be given as
to the market price of shares of SouthTrust Common Stock on the date the Merger
becomes effective or as to the market price of SouthTrust Common Stock
thereafter.
POSSIBLE CONVERSION RATIO ADJUSTMENT
On the forty-fifth (45th) day before the Merger is scheduled to close
(the "Determination Date"), Navigation may review the last reported sales prices
of shares of SouthTrust Common Stock as reported on
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NASDAQ for the twenty (20) consecutive trading days of NASDAQ ending the close
of trading on the Determination Date. If the average of these last reported
sales prices (the "Average Closing Price"), multiplied by 0.85 is less than
$33.52, Navigation may elect to terminate the Merger Agreement.
If Navigation elects to terminate the Merger Agreement, it must give
prompt written notice of the election to terminate to SouthTrust and must
provide such written notice to SouthTrust within the three (3) day period
following the Determination Date. Navigation may withdraw the notice of election
to terminate at any time within the three day period in which Navigation may
make the election. SouthTrust then will have five (5) days in which to elect to
increase the Conversion Ratio so that it equals the quotient obtained by
dividing $372.59 by the Average Closing Price on the Determination Date. If
SouthTrust elects to increase the Conversion Ratio within the permitted five day
period, it will give prompt written notice to Navigation of the election and the
revised Conversion Ratio. If SouthTrust elects to increase the Conversion Ratio,
then no termination shall have occurred and the Merger Agreement will remain in
effect in accordance with its terms (except as the Conversion Ratio shall have
been so modified), and any references in the Merger Agreement to "Conversion
Ratio" will then be deemed to refer to the Conversion Ratio as adjusted.
We cannot assure you that the Board of Directors of Navigation would
exercise its rights to terminate the Merger Agreement if the criteria specified
above are met. Furthermore, if the Board of Directors of Navigation does elect
to terminate the Merger Agreement in such circumstances, we cannot assure you
that SouthTrust would elect to increase the Conversion Ratio as provided in the
Merger Agreement.
Shareholders of Navigation should be aware that any increase in the
Conversion Ratio, if at all, will be based on the average last sales price of
shares of SouthTrust Common Stock during the twenty trading day period ending on
the Determination Date. Accordingly, because the market price of shares of
SouthTrust Common Stock will fluctuate between the Determination Date and the
Effective Time of the Merger, as well as on the date certificates representing
shares of SouthTrust Common Stock are delivered in exchange for shares of
Navigation Common Stock following consummation of the Merger, the value of the
shares of SouthTrust Common Stock actually received by shareholders of
Navigation may be more or less than the Average Closing Price used to determine
the increased Conversion Ratio.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective on the date and at the time on which
the Merger is deemed effective by the Comptroller. The Merger Agreement provides
that, unless otherwise mutually agreed upon in writing, the parties to the
Merger Agreement will use their reasonable efforts to cause such Effective Time
to occur as soon as practicable following the later to occur of (1) the
effective date (including expiration of any applicable waiting period) of the
last required consent of any regulatory authority having authority over and
approving or exempting the Merger, and (2) the date on which the shareholders of
Navigation approve the Merger Agreement, although SouthTrust and Navigation may
agree to another date. The Merger cannot become effective until the shareholders
of Navigation have approved the Merger Agreement and all required regulatory
approvals and actions have been obtained and taken.
THE CO-VOTING REPRESENTATIVES HAVE AGREED TO VOTE THE SHARES OF
NAVIGATION COMMON STOCK OVER WHICH THEY HAVE VOTING CONTROL IN FAVOR OF ADOPTION
OF THE MERGER AGREEMENT. ACCORDINGLY, IT IS ANTICIPATED THAT THE MERGER
AGREEMENT WILL BE ADOPTED, AND CONSEQUENTLY, THE MERGER WILL BE APPROVED, AT THE
SPECIAL MEETING. HOWEVER, NO ASSURANCE CAN BE PROVIDED THAT THE NECESSARY
SHAREHOLDER AND REGULATORY APPROVALS WILL BE OBTAINED OR THAT OTHER CONDITIONS
PRECEDENT TO THE MERGER CAN OR WILL BE SATISFIED. NAVIGATION AND SOUTHTRUST
ANTICIPATE THAT ALL CONDITIONS TO CONSUMMATION OF THE MERGER WILL BE SATISFIED
SO THAT THE MERGER CAN BE CONSUMMATED ON OR BEFORE JULY 30, 1999. HOWEVER,
DELAYS IN THE CONSUMMATION OF THE MERGER COULD OCCUR.
Either SouthTrust, ST-Sub, ST-Bank or Navigation generally may
terminate the Agreement if the Merger is not consummated on or prior to October
31, 1999, but only if the party electing to terminate is not then in breach of
any representations, warranties, covenants or other agreements contained in the
Merger Agreement. See "THE MERGER - Regulatory Approvals and Certain Other
Conditions to Consummation of the Merger" at p. 28 and "THE MERGER -
Termination" at p. 30.
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EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Time of the Merger, SouthTrust and
Navigation will cause the exchange agent selected by SouthTrust (the "Exchange
Agent") to mail appropriate transmittal materials to each former holder of
record of shares of Navigation Common Stock. Shareholders should use these
transmittal materials to exchange their certificates which formerly represented
shares of Navigation Common Stock for exchange and conversion into shares of
SouthTrust Common Stock in accordance with the procedures provided for in this
Proxy Statement/Prospectus and in the Merger Agreement. The shareholders of
Navigation should carefully follow the instructions in the letter of transmittal
to ensure proper delivery of their shares of Navigation Common Stock to the
Exchange Agent. NAVIGATION SHAREHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES
FOR EXCHANGE UNTIL THEY RECEIVE SUCH LETTER OF TRANSMITTAL AND INSTRUCTIONS.
After the Effective Time of the Merger, each holder of shares of
Navigation Common Stock shall surrender the certificates representing those
shares to the Exchange Agent and shall promptly receive in exchange:
- certificates representing the shares of SouthTrust Common
Stock to which they are entitled;
- all undelivered dividends or distributions on shares of
SouthTrust Common Stock declared after the Effective Time of
the Merger (but without interest on such amounts); and
- cash in lieu of fractional shares of SouthTrust Common Stock
to which the shareholder may otherwise be entitled.
A shareholder of Navigation will not receive any shares of SouthTrust Common
Stock or other related payments until the shareholder has surrendered the shares
of Navigation Common Stock held by the shareholder for exchange. Neither
SouthTrust nor the Exchange Agent shall be liable to a holder of shares of
Navigation Common Stock for any amounts paid or property delivered in good faith
to a public official pursuant to any applicable abandoned property law.
Whenever SouthTrust may declare a dividend or other distribution on
shares of SouthTrust Common Stock, with a record date at or after the Effective
Time of the Merger, all shares issuable pursuant to the Merger Agreement will
also be included in the declaration so that all shareholders of Navigation will
receive the dividend or declared distribution on all shares of SouthTrust Common
Stock issued, or to be issued, to the shareholder in the Merger. However, after
the Effective Time of the Merger, a shareholder of Navigation will not receive
any dividend or other distribution payable after the Effective Time of the
Merger with respect to shares of SouthTrust Common Stock unless and until the
holder duly surrenders his or her certificates representing shares of Navigation
Common Stock.
After the Effective Time of the Merger, there will be no transfers of
shares of Navigation Common Stock on Navigation's stock transfer books. If
certificates formerly representing shares of Navigation Common Stock are
presented for transfer after the Effective Time of the Merger, they will be
canceled and exchanged for shares of SouthTrust Common Stock and a check for the
amount due in lieu of fractional shares, if any, pursuant to the Merger
Agreement.
RESALE OF SHARES OF SOUTHTRUST COMMON STOCK RECEIVED IN THE MERGER
SouthTrust has registered the shares of SouthTrust Common Stock to be
issued pursuant to the Merger Agreement, as required under the Securities Act.
Therefore, shareholders of Navigation can sell their shares of SouthTrust Common
Stock without restriction unless the shareholder was deemed to be an "affiliate"
(as that term is defined in the rules under the Securities Act) of Navigation or
becomes an affiliate of SouthTrust. Affiliates of Navigation may resell the
shares of SouthTrust Common Stock received by them in the Merger only.
- pursuant to an effective registration statement filed to
permit resale by shareholders who are affiliates;
- pursuant to Rule 145 under the Securities Act; or
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- in transactions which are otherwise exempt from registration
under the Securities Act.
SouthTrust will not be obligated and does not intend to register its
shares under the Securities Act for resale by shareholders who are affiliates.
Under the volume limitations of Rule 145, and based upon outstanding shares of
SouthTrust Common Stock as of March 31, 1999 (exclusive of shares of SouthTrust
Common Stock to be issued in the Merger), each affiliate of Navigation will be
free to resell, during any given three-month period, up to approximately
1,673,248 shares of SouthTrust Common Stock, provided that such affiliate
otherwise complies with the provisions of Rule 145.
This Proxy Statement/Prospectus does not cover any resales of shares of
SouthTrust Common Stock received by persons who may be deemed to be affiliates
of Navigation or SouthTrust.
Navigation has identified certain persons as affiliates of Navigation.
Each of those affiliates has executed a written agreement in the form provided
for in the Merger Agreement providing that such affiliate will not sell,
transfer or otherwise dispose of such shares of SouthTrust Common Stock to be
received by such affiliate upon consummation of the Merger, except
- in compliance with the Securities Act or the rules and
regulations thereunder, and
- after financial results covering at least 30 days of combined
operations of Navigation and SouthTrust have been published
within the meaning of Section 201.01 of the Commission's
Codification of Financial Reporting Policies.
ACCOUNTING TREATMENT
SouthTrust will account for the Merger as a pooling of interests. Under
the pooling-of-interests method of accounting, the recorded amounts of the
assets and liabilities of Navigation and SouthTrust will be carried forward at
their previously recorded amounts. The Merger Agreement provides, as a condition
of SouthTrust's obligations to consummate the Merger, that the transactions
contemplated by the Merger Agreement qualify for pooling of interest accounting
treatment, as determined by SouthTrust. To assure the availability of
pooling-of-interests accounting treatment, affiliates of Navigation will be
subject to certain restrictions on transfers of the SouthTrust Common Stock they
receive. For more information on these restrictions, see "THE MERGER - Resale of
Shares of SouthTrust Common Stock Received in the Merger" at p. 27.
REGULATORY APPROVALS AND CERTAIN OTHER CONDITIONS TO THE MERGER
SouthTrust and Navigation will not be obligated to consummate the
Merger until certain conditions are satisfied, including, among others, (1) the
receipt of all required regulatory approvals with respect to the Merger, (2) the
approval of the Merger Agreement by the requisite vote of Navigation
shareholders, and (3) certain other conditions as described in more detail
below.
SouthTrust and Navigation have submitted applications for the approvals
described below to the appropriate regulatory agencies. WE CANNOT ASSURE YOU
THAT SUCH REGULATORY APPROVALS WILL BE OBTAINED OR AS TO THE TIMING OF ANY SUCH
APPROVALS. Any such approvals may impose conditions or be restricted in a manner
(including requirements relating to the raising of additional capital or the
disposition of assets) which in the reasonable judgment of the Board of
Directors of either SouthTrust or Navigation would so materially adversely
impact the economic or business benefits of the transactions contemplated by the
Agreement that, SouthTrust or Navigation would not, in its reasonable judgment,
have entered into the Merger Agreement had such condition or requirement been
known.
Any approval received from bank regulatory agencies reflects only their
view that the Merger does not contravene applicable competitive standards
imposed by law, and that the Merger is consistent with regulatory policies
relating to safety and soundness. THE APPROVAL OF THE BANK REGULATORY AGENCIES
IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE MERGER.
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Navigation and SouthTrust are not aware of any material governmental
approvals or actions that are required for consummation of the Merger, except
those described below. If any other approval or action is required, SouthTrust
and Navigation plan to seek such approval or action.
The Merger cannot be consummated without certain regulatory approvals,
including the approval of the Comptroller under the Bank Merger Act, which
prohibits the merger or consolidation of any insured institution with any other
depository institution without the approval of the insured institution's primary
federal supervisory regulatory agency. On May 25, 1999 ST-Bank submitted to the
Comptroller an application seeking approval of the Merger.
The Bank Merger Act requires that the Comptroller take into
consideration, among other factors, the financial and managerial resources and
future prospects of the institutions and the convenience and needs of the
communities to be served. In essence, the Comptroller will deny approval of the
Merger
- if such transaction would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part
of the United States, or
- if the effect of such transaction in any section of the
country may be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other manner be a
restraint of trade,
unless the relevant regulatory agency finds that the anti-competitive effects of
such merger are clearly outweighed by the public interest and by the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served. Under the Bank Merger Act, the Comptroller also
considers whether the proposed transaction can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition, or
gains in efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices. The Comptroller has the authority to
deny an application if it concludes that the combined organization would have an
inadequate capital position or if the acquiring organization does not meet the
requirements of the Community Reinvestment Act of 1977. In addition, the Merger
may not be consummated until the 30th day following the date of the approval of
the Comptroller, during which period the United States Department of Justice may
comment adversely on the transaction or challenge the Merger on antitrust
grounds. However, the Merger may be consummated on or after the 15th day
following the date of the approval of the Comptroller if the Comptroller does
not receive any adverse comments from the United States Attorney General and the
United States Attorney General consents to the shorter period. The commencement
of an antitrust action would suspend the effectiveness of such an approval
unless a court specifically orders otherwise. There can be no assurance that the
United States Department of Justice or a State Attorney General will not
challenge the Merger or, if such a challenge is made, as to the result of such a
challenge.
The consummation of the Merger is subject to (1) receipt of all
necessary regulatory approvals and the expiration of all required notice and
waiting periods following the granting of such approvals, (2) the approval of
the Merger Agreement by the requisite vote of the shareholders of Navigation and
(3) the satisfaction of certain other conditions on or before the Effective Time
of the Merger. Such additional conditions include, among others, the following:
- neither the Commission nor any other Regulatory Authority will
have issued any stop orders suspending the effectiveness of
the Registration Statement or initiated or threatened any
proceeding to suspend the effectiveness of the Registration
Statement;
- the representations and warranties of SouthTrust and
Navigation, respectively, made in the Merger Agreement and
assessed as of the time of the Merger Agreement and as of all
times up to and including the Effective Time of the Merger
will be accurate to the extent provided for in the Merger
Agreement;
- SouthTrust and Navigation, respectively, will have performed,
and complied with all of their respective agreements and
covenants pursuant to the Merger Agreement;
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- the receipt by Navigation of the opinion of Bradley Arant Rose
& White LLP as to certain tax matters (see "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES");
- the receipt by Navigation of the opinion of Bradley Arant Rose
& White LLP as to certain matters and the receipt by
SouthTrust of the opinion of Hausler, Farra & Kennedy, as to
certain matters;
- no court or governmental or regulatory authority of competent
jurisdiction will have enacted, issued, promulgated, enforced
or entered any law, order or similar restriction or taken any
other action which prohibits or makes illegal the consummation
of the transactions contemplated by the Merger Agreement;
- the shares of SouthTrust Common Stock issuable pursuant to the
Merger will have been approved for listing on NASDAQ;
- SouthTrust shall not have determined that the transactions
contemplated by the Merger Agreement fail to qualify for
pooling of interests accounting treatment; and
- in the case of SouthTrust's obligations, the holders of not
more than 5% of the outstanding shares of Navigation Common
Stock, will have taken appropriate steps to dissent from the
Merger.
WAIVER AND AMENDMENT
At any time before the Effective Time of the Merger, any party to the
Merger Agreement may: (1) waive any default in the performance of any term of
the Merger Agreement by the other party; (2) waive or extend the time for
compliance or fulfillment by the other party of any and all of such other
parties' obligations; and (3) waive any or all conditions to its obligations
under the Merger Agreement, except any condition which, if not satisfied, would
result in the violation of any law or any applicable governmental regulation.
The parties to the Merger Agreement may amend the Merger Agreement in
writing if all of the parties to the Merger Agreement execute the written
amendment, except that the parties may not amend the Merger Agreement to reduce
or modify the consideration to be received by the holders of Navigation Common
Stock.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned, at any
time prior to the Effective Time of the Merger in any of the following ways:
1. by the mutual consent in writing of SouthTrust, ST-Sub,
ST-Bank and Navigation;
2. by SouthTrust, ST-Sub, ST-Bank or Navigation if the Merger
shall not have occurred on or prior to October 31, 1999,
provided that the failure to consummate the Merger on or
before such date is not accompanied by any breach of any of
the representations, warranties, covenants or other agreements
contained in the Merger Agreement by the party electing to
terminate;
3. by SouthTrust, ST-Sub, ST-Bank or Navigation (if the
terminating party is not then in breach of any representation,
warranty, covenant or other agreement contained in the Merger
Agreement) if the other party's representations or warranties
are inaccurate and the inaccuracy cannot be or has not been
cured within a specified period;
4. by SouthTrust, ST-Sub, ST-Bank or Navigation (if the
terminating party is not then in breach of any representation,
warranty, covenant or other agreement contained in the Merger
Agreement) if the other party has materially breached any
covenant or other agreement given by it and the breach cannot
be or has not been cured within a specified period;
5. by SouthTrust, ST-Sub, ST-Bank or Navigation if (1) any
consent from any regulatory authority required to consummate
the Merger is denied in a final appeal, (2) the parties fail
to appeal within
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the specified period any decision of a regulatory authority
denying approval of the Merger, or (3) the shareholders of
Navigation fail to vote in favor of the Merger Agreement and
the Merger;
6. by SouthTrust or Navigation (provided that the terminating
party is not then in breach of any representation, warranty,
covenant or other agreement contained herein) in the event
that any of the conditions to the obligations of the
nonterminating party to consummate the Merger cannot be
satisfied or fulfilled which include, but are not limited, to
the following:
(a) the terminating party shall have determined that any fact,
event or condition exists that, in the judgment of the
terminating party:
- has a Material Adverse Effect or can be reasonably
foreseen to have a Material Adverse Effect on the
nonterminating party or the consummation of the
transactions contemplated by the Merger Agreement;
- would be materially adverse to the interests of the
terminating party on a consolidated basis, if
applicable;
- would be of such significance with respect to the
business or economic benefits expected to be obtained
by the terminating party so as to render
communication of the Merger inadvisable; or
- renders the Merger or the other transactions
contemplated by the Merger Agreement impractical
because of any state of war, national emergency,
banking moratorium or general suspension of trading
on NASDAQ, the New York Stock Exchange, Inc. or any
other national securities exchange; or
(b) there shall be any litigation or threat of litigation
- challenging the validity or legality of the Merger
Agreement or the consummation of the transactions
contemplated by the Merger Agreement;
- seeking damages in connection with the consummation
of the transactions contemplated by the Merger
Agreement; or
- seeking to restrain or invalidate the consummation of
the transactions contemplated by the Merger
Agreement.
7. by SouthTrust, ST-Sub or ST-Bank, if any shareholder of
Navigation has commenced or threatened to commence any
litigation challenging the validity of the decision of
Navigation that Section 6 of the Voting and Stock Restriction
Agreement is not applicable to the Merger; or
8. by Navigation if the actual average closing price of shares of
SouthTrust Common Stock for the twenty (20) consecutive days
shares of SouthTrust Common Stock are traded on NASDAQ, ending
on the forty-fifth (45th) day prior to the anticipated closing
date, is less than $33.52, as set forth in more detail in "THE
MERGER - Possible Conversion Ratio Adjustment" at p. 25.
If the Merger Agreement is terminated, then the only liability or
further obligation that will continue under the Merger Agreement (other than a
possible termination fee), will be liability by a breaching party for any
uncured willful breach of any representations, warranties, covenants or other
agreements giving rise to such termination. Furthermore, Navigation shall pay
SouthTrust a cash amount of $750,000 as an agreed-upon termination fee as the
sole and exclusive remedy of SouthTrust against Navigation if (1) Navigation
receives an offer or proposal to enter an acquisition transaction with a third
party, (2) the Merger Agreement and the Merger are then disapproved by
Navigation or the shareholders of Navigation, and (3) Navigation consummates or
agrees to consummate an acquisition transaction with a third party within one
year after the Merger Agreement is disapproved by Navigation or the shareholders
of Navigation.
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CERTAIN EXPENSES
The parties to the Merger Agreement will bear their own expenses
incurred in connection with consummating the transactions contemplated by the
Merger Agreement. SouthTrust will pay all the filing fees payable in connection
with the Registration Statement and the Proxy Statement/Prospectus and printing
costs incurred in connection with the printing of the Registration Statement and
the Proxy Statement/Prospectus.
RIGHTS OF DISSENT AND APPRAISAL
A shareholder of Navigation may dissent from the Merger and receive in
cash the fair value, as of the day immediately preceding the Special Meeting, of
the shares of Navigation Common Stock held by such shareholder pursuant to
Articles 5.12 and 5.13 of the Texas Business Corporation Act ("the Dissent
Provisions"). The following is only a summary of the Dissent Provisions. We urge
each shareholder of Navigation to read carefully the full text of the Dissent
Provisions set forth as Exhibit C to this Proxy Statement/Prospectus.
Under the Dissent Provisions, a shareholder of Navigation may dissent
from the Merger by (1) filing with Navigation, prior to the Special Meeting a
written objection to the Merger and (2) within ten (10) days of ST-Bank
delivering notice of the approved Merger to the shareholder, making a written
request to ST-Bank to receive the fair value of the shares of Navigation Common
Stock held by such shareholder. In the written objection sent to Navigation, the
dissenting shareholder must state the shareholder's intent to exercise the
shareholder's right of dissent if the Merger is approved, along with the
shareholder's address. A shareholder of Navigation who votes for adoption of the
Merger Agreement at the Special Meeting will be prohibited from exercising the
shareholder's right of dissent.
If the Merger is approved, then Navigation will deliver or mail to the
shareholder, within ten (10) days after the Merger is effected, written notice
that the Merger has been effected. Within ten (10) days after the mailing of the
notice, the dissenting shareholder, provided the shareholder has not voted in
favor of adopting the Merger Agreement and approving the Merger at the Special
Meeting, may make written demand upon ST-Bank for payment of the fair value of
the shareholder's shares of Navigation Common Stock. The fair value of the
shares shall be the value of the shares on the day immediately preceding the
Special Meeting, excluding any appreciation or depreciation in anticipation of
the Merger. The dissenting shareholder's written demand shall state the number
and class of the shares owned by the shareholder and the fair value as estimated
by the shareholder. Any shareholder of Navigation who fails to make demand
within the ten (10) day period shall be bound by the Merger and shall receive
shares of SouthTrust Common Stock, as determined by the Conversion Ratio of
11.1149, as may be adjusted in certain circumstances. Within twenty (20) days
after demanding payment, each holder of certificates representing shares so
demanding payment must submit such certificates to the corporation for notation
thereon that such demand has been made. Any dissenting shareholder who fails to
submit the certificates shall their dissent rights terminated at the option of
the corporation, unless a court of competent jurisdiction shall otherwise
direct.
ST-Bank will either accept or not accept the shareholder's estimate of
the fair value of the shareholder's shares of Navigation Common Stock. If
ST-Bank accepts the shareholder's estimate, then ST-Bank will notify the
shareholder, within twenty (20) days of receiving the shareholder's estimate,
that ST-Bank, as escrow agent, agrees to pay that amount within ninety (90) days
of the date the Merger is effected, provided the shareholder surrenders the
certificates representing the shares of Navigation Common Stock held by the
shareholder, duly endorsed.
If ST-Bank does not accept the shareholder's estimate of the fair value
of the shareholder's shares of Navigation Common Stock, then ST-Bank will notify
the shareholder, within twenty (20) days of receiving the shareholder's
estimate, of ST-Bank's estimate of the fair value of the shares, along with an
offer to pay that amount within ninety (90) days after the Merger is effected,
provided ST-Bank receives, within sixty (60) days after the Merger is effected,
notice from the shareholder that the shareholder agrees to accept ST-Bank's
estimate and upon surrender of the certificates representing the shares of
Navigation Common Stock held by the shareholder, duly endorsed.
Accordingly, if within sixty (60) days after the date the Merger is
effected, the shareholder and ST-Bank have agreed on an estimate of the fair
value of the shares of Navigation Common Stock held by the shareholder because
either ST-Bank or the shareholder has accepted the estimate of the other, then
the shareholder shall surrender the certificates representing the shares of
Navigation Common Stock held by the shareholder, and
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ST-Bank, as escrow agent, shall pay the shareholder the amount agreed upon
within ninety (90) days after the Merger is effected.
If, however, within sixty (60) days after the date the Merger is
effected, the shareholder and ST-Bank do not agree on an estimate of the fair
value of the shares of Navigation Common Stock held by the shareholder, then
within sixty (60) days of the expiration of the sixty (60) day period either
party may file a petition in a court of competent jurisdiction in Harris County,
Texas, asking for a determination of the value of the shares of Navigation
Common Stock held by the shareholder. The court shall appoint one or more
appraisers to determine the value, and the court shall make the final, binding
determination of the value of the shares of Navigation Common Stock held by the
shareholder. ST-Bank, as escrow agent, shall pay that amount, plus interest, to
the shareholder upon surrender of the certificates representing the shares of
Navigation Common Stock held by the shareholder, duly endorsed. The court shall
allot between the shareholder and ST-Bank all court costs and appraisal fees as
the court determines to be fair and equitable.
CONDUCT OF BUSINESS BY NAVIGATION PENDING THE MERGER
The Merger Agreement provides that, until the Effective Time of the
Merger, and except with the prior approval of SouthTrust, or as otherwise
required by law or regulation, Navigation will operate its business only in the
usual, regular and ordinary course, preserve intact its business organization,
employees, goodwill with customers and advantageous business relationships and
retain the services of its officers and key employees. Navigation also will take
no action which would adversely affect its ability to obtain required regulatory
approvals or to perform any of its material obligations under the Merger
Agreement. The Merger Agreement further provides that, until the Effective Time
of the Merger, Navigation will NOT do or agree or commit to do any of the
following without the prior written consent of SouthTrust:
(1) change, delete or add any provision of or to the Articles of
Association or Bylaws of Navigation;
(2) (A) change the number of shares of the authorized, issued or
outstanding capital stock of Navigation; (B) issue or grant
any option, warrant, call, commitment, subscription, right or
agreement to purchase relating to the authorized or issued
capital stock of Navigation; or (C) declare, set aside or pay
any dividend or other distribution with respect to the
outstanding capital stock of Navigation;
(3) incur any material liabilities or material obligations (other
than deposit liabilities and short-term borrowings in the
ordinary course of business), whether directly or by way of
guaranty, including any obligation for borrowed money, or
whether evidenced by any note, bond, debenture, or similar
instrument, except in the ordinary course of business
consistent with past practice;
(4) make any capital expenditures individually in excess of
$25,000, or in the aggregate in excess of $50,000 other than
pursuant to binding commitments existing on December 31, 1998
and disclosed in a Disclosure Schedule delivered pursuant to
the Merger Agreement and other than expenditures necessary to
maintain existing assets in good repair;
(5) sell, transfer, convey or otherwise dispose of any real
property (including "other real estate owned") or interest
therein or any tangible or intangible personal property having
a book value in excess of or in exchange for consideration in
excess of $25,000 for each such parcel or interest;
(6) (A) pay any bonuses to any executive officer or director
except pursuant to the terms of an enforceable written
agreement as reflected in a Disclosure Schedule delivered
pursuant to the Merger Agreement; (B) enter into any new, or
amend in any respect any existing, employment, consulting,
non-competition or independent contractor agreement with any
person; (C) alter the terms of any existing incentive bonus or
commission plan; (D) adopt any new or amend in any material
respect any existing employee benefit plan or bonus plan,
except as may be required by law; (E) grant any general
increase in
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compensation to its employees as a class or to its officers
except for non-executive officers in the ordinary course of
business and consistent with past practices and policies or
except in accordance with the terms of an enforceable written
agreement; (F) grant any material increases in fees or other
increases in compensation or in other benefits to any of its
directors; or (G) effect any change in any material respect in
retirement benefits to any class of employees or officers,
except as required by law;
(7) enter into or extend any agreement, lease or license relating
to real property, tangible or intangible personal property or
any service or other function (including, without limitation),
data processing or bankcard functions relating to Navigation
that involves an aggregate of $25,000;
(8) increase or decrease the rate of interest paid on time
deposits or on certificates of deposit, except in a manner and
pursuant to policies consistent with Navigation's past
practices;
(9) purchase or otherwise acquire any investment securities for
its own account having an average remaining life to maturity
greater than five years, or any asset-backed security, other
than those issued or guaranteed by the Government National
Mortgage Association, the Federal National Mortgage
Association or Home Loan Mortgage Corporation, or any
Derivative Contract (as defined in the Merger Agreement); or
(10) acquire twenty percent (20%) or more of the assets or equity
securities of any person or acquire direct or indirect control
of any person, other than in connection with (A) any internal
reorganization or consolidation involving Navigation which has
been approved in advance in writing by SouthTrust, (B)
foreclosures in the ordinary course of business, (C)
acquisitions of control by Navigation in a fiduciary capacity
or (D) the creation of new subsidiaries organized to conduct
and continue activities otherwise permitted by this Agreement.
No Solicitation
Navigation has also agreed that it will not, acting through any
director or officer or other agent, nor shall it authorize or knowingly permit
any officer, director or employee of, or any investment banker, attorney,
accountant or other representative retained by Navigation to, solicit or
encourage, including by way of furnishing information, any inquiries or the
making of any proposal which may reasonably be expected to lead to any takeover
proposal with respect to Navigation. Navigation has agreed to promptly advise
SouthTrust orally and in writing of any such inquiries or proposals received by
Navigation. As used in this paragraph, "takeover proposal" means any proposal
for a merger or other business combination involving Navigation or for the
acquisition of a significant equity interest in Navigation or for the
acquisition of a significant portion of the assets or liabilities of Navigation.
In addition, Navigation has also agreed that, except to the extent
necessary to comply with the fiduciary duties of the Board of Directors of
Navigation, as advised in writing by counsel to the Board of Directors of
Navigation, Navigation nor any officer, director, employee or representative of
Navigation shall not furnish any non-public information that it is not legally
obligated to furnish or negotiate or enter into any agreement or contract with
respect to any takeover proposal.
Notwithstanding this, Navigation may communicate information about a
takeover proposal to its shareholders if and to the extent it is required to do
so in order to comply with its legal obligations as advised in writing by legal
counsel.
BUSINESS AND MANAGEMENT OF NAVIGATION FOLLOWING THE MERGER; PLANS FOR BUSINESS
OF NAVIGATION
Upon consummation of the Merger, Navigation will be merged into
ST-Bank, with ST-Bank being the surviving corporation in the Merger (the
"Surviving Corporation"). After the Effective Time of the Merger, SouthTrust
will integrate the operations of Navigation into the operations of ST-Bank, with
efforts directed toward preserving the existing customer and banking
relationships of Navigation as part of ST-Bank. Navigation and SouthTrust
anticipate that the Board of Directors of the Surviving Corporation will consist
of those persons who are
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serving as directors of ST-Bank as of the Effective Time of the Merger, and any
other person designated in writing by SouthTrust at or prior to the Effective
Time of the Merger to serve as a director of the Surviving Corporation.
Navigation and SouthTrust further anticipate that the officers of the Surviving
Corporation will be those persons serving as officers of ST-Bank as of the
Effective Time of the Merger, and any other person designated in writing by
SouthTrust at or prior to the Effective Time of the Merger to serve as an
officer of the Surviving Corporation.
Following the Effective Time of the Merger, SouthTrust has agreed:
- to cover the officers and employees of Navigation who are
employed by ST-Bank under the employee benefit plans of
SouthTrust;
- to grant such employees coverage and benefits under such
employee benefit plans comparable to those granted SouthTrust
employees of comparable position and seniority; and,
- subject to the provisions discussed in the following
paragraph, to credit service with Navigation prior to the
Effective Time of the Merger for purposes of determining
eligibility of such employees to participate in such employee
benefit plans.
With respect to the issue of credit for services, the following
exceptions will apply:
- with respect to SouthTrust's group medical insurance plan,
SouthTrust will credit each such employee for eligible
expenses incurred by such employee and his or her dependents
(if applicable) under Navigation's group medical insurance
plan during calendar year 1999 for purposes of satisfying the
deductible provisions under SouthTrust's group medical
benefits plan for calendar year 1999; and
- credit for each such employee's past service with Navigation
prior to the Effective Time of the Merger will be given by
SouthTrust to employees for purposes of: (1) determining
vacation and sick leave benefits and accruals in accordance
with the established policies of SouthTrust; (2) establishing
eligibility for participation in, and vesting under,
SouthTrust's employee benefits plans and for purposes of
determining the scheduling of vacations and other
determinations which are made based on length of service
(except that such credit for past service will not be given to
any such employee for purposes of establishing eligibility for
participation in the 1990 Discounted Stock Plan of
SouthTrust); and (3) for determining satisfaction of
applicable waiting periods under SouthTrust's employee benefit
plans for pre-existing conditions.
The Merger Agreement further provides that the Navigation Bank 401(k)
Plan will either be merged into the SouthTrust Corporation Employee's Profit
Sharing Plan (the "STPS Plan") effective as of January 1 of the year following
the Effective Time of the Merger or will be terminated as of a date prior to, on
or after the Effective Time of the Merger. From and after January 1 following
the Effective Time of the Merger, for purposes of determining eligibility to
participate in, and vesting in accrued benefits under, both the SouthTrust
Corporation Revised Retirement Income Plan (the "ST Retirement Plan") and the
STPS Plan, employment by Navigation will be credited as if it were employment by
SouthTrust, but such service will not be credited for purposes of determining
benefit accrual under the ST Retirement Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income
tax consequences of the Merger to holders of shares of Navigation Common Stock.
The discussion is included for general information purposes only and applies
only to those holders of shares of Navigation Common Stock who hold such shares
as capital assets. This discussion may not apply to taxpayers in special
situations, such as holders of shares of Navigation Common Stock, if any, who
received their shares upon the exercise of employee stock options or otherwise
as compensation and holders that are insurance companies, securities dealers,
financial institutions or foreign persons.
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EACH HOLDER OF SHARES OF NAVIGATION COMMON STOCK IS URGED TO CONSULT HIS OR HER
OWN TAX ADVISOR AS TO THE FEDERAL INCOME TAX CONSEQUENCES IN HIS OR HER OWN
PARTICULAR FACTS AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR
OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.
Neither SouthTrust, ST-Sub, ST-Bank nor Navigation has requested or
will receive an advance ruling from the Internal Revenue Service ("IRS") as to
any of the federal income tax consequences of the Merger to holders of shares of
Navigation Common Stock or to SouthTrust, ST-Sub, ST-Bank or Navigation. The
consummation of the Merger is conditioned upon the receipt by Navigation of an
opinion of Bradley Arant Rose & White LLP as to certain of the federal income
tax consequences of the Merger to the holders of shares of Navigation Common
Stock. The opinion of Bradley Arant Rose & White LLP is based entirely upon the
Code, current regulations under the Code, current administrative rulings and
practice, and judicial authority, all of which are subject to change, possibly
with retroactive effect. Management of SouthTrust has represented to Bradley
Arant Rose & White LLP that it has no plan or intention to cause SouthTrust to
redeem or otherwise reacquire the shares of SouthTrust Common Stock issued in
the Merger, and Bradley Arant Rose & White LLP has relied upon this, and other
representations by SouthTrust and by Navigation in rendering its opinion.
Unlike a ruling from the IRS, an opinion is not binding on the IRS and
SouthTrust and Navigation cannot (and do not here) assure the shareholders of
Navigation that the IRS will not take a position contrary to one or more
positions reflected in this Proxy Statement/Prospectus or that the positions
stated in the opinion will be upheld by the courts if challenged by the IRS.
In the opinion of Bradley Arant Rose & White LLP, the following federal
income tax consequences to the holders of Navigation Common Stock will result
from the Merger:
(1) For federal income tax purposes the Merger will be viewed
as an acquisition by ST-Sub of substantially all of the assets of
Navigation solely in exchange for shares of SouthTrust voting Common
Stock and the assumption of all the liabilities of Navigation by
ST-Sub, followed by the transfer of the assets of Navigation to ST-Bank
and the assumption by ST-Bank of the liabilities of Navigation.
(2) The acquisition by ST-Sub of substantially all of the
assets of Navigation in exchange solely for shares of SouthTrust voting
Common Stock and the assumption by ST-Sub of Navigation's liabilities
will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code. For purposes of the opinion, "substantially
all" means at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets of
Navigation. Pursuant to Section 368(a)(2)(C) of the Code, the
acquisition by ST-Sub of substantially all of the assets of Navigation
will not be disqualified under Section 368(a)(1)(C) of the Code solely
by reason of the fact that the assets of Navigation that were acquired
by ST-Sub are transferred to ST-Bank. SouthTrust, ST-Sub and Navigation
each will be a "party to the reorganization" within the meaning of
Section 368(b) of the Code. The requirement under Section 368(a)(2)(G)
of the Code that Navigation distribute the stock, securities, and other
properties it receives, as well as its other properties, in pursuance
of the plan of reorganization will be satisfied by reason of the
issuance by ST-Sub of the merger consideration directly to the holders
of Navigation Common Stock, and by reason of the cessation of the
separate corporate existence of Navigation pursuant to the Merger
Agreement and the applicable provisions of the Texas Code.
(3) No gain or loss will be recognized by the shareholders of
Navigation upon the receipt of shares of SouthTrust Common Stock
(including the Rights associated therewith) solely in exchange for
their shares of Navigation Common Stock. In addition, no gain or loss
will be recognized by shareholders of Navigation upon the receipt of
the Rights attached to the shares of SouthTrust Common Stock.
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<PAGE> 43
(4) The basis of the shares of SouthTrust Common Stock to be
received by the shareholders of Navigation will be the same as the
basis of the shares of Navigation Common Stock surrendered in exchange
therefor, except for the basis allocated to any fractional shares.
(5) The holding period of the shares of SouthTrust Common
Stock to be received by the shareholders of Navigation will include the
period during which shares of Navigation Common Stock surrendered in
exchange therefor were held, provided that the shares of Navigation
Common Stock were held as capital assets within the meaning of Section
1221 of the Code as of the Effective Time of the Merger.
(6) Shareholders of Navigation who exercise dissenters'
rights, and as a result of which receive only cash, will be treated as
having received such cash as a distribution in redemption of their
shares of Navigation Common Stock, subject to the provisions and
limitations of Section 302 of the Code. Those shareholders of
Navigation who hold no shares of SouthTrust Common Stock, directly or
indirectly through the application of Section 318(a) of the Code,
following the Merger shall be treated as having a complete termination
of interest within the meaning of Section 302(b)(3) of the Code, and
the cash received by them will be treated as a distribution in full
payment in exchange for their shares of Navigation Common Stock as
provided in Section 302(a) of the Code. As provided in Section 1001 of
the Code, gain will be realized and recognized by such shareholders
measured by the difference between the redemption price and the
adjusted basis of the shares of Navigation Common Stock surrendered as
determined under Section 1011 of the Code. Provided Section 341 of the
Code (relating to collapsible corporations) is inapplicable and the
shares of Navigation Common Stock are a capital asset in the hands of
such shareholders, the gain, if any, will constitute capital gain. Such
gain will constitute a long-term capital gain if the surrendered shares
of Navigation Common Stock were held by the shareholder for a period
greater than one year prior to the Merger; if the surrendered shares of
Navigation Common Stock where held by such shareholder for a period of
one year or less, the gain will constitute short-term capital gain.
(7) Payment of cash to a holder of shares of Navigation Common
Stock in lieu of issuing a fractional share of SouthTrust Common Stock
will be treated as if the fractional share actually was issued as part
of the Merger and then was redeemed by SouthTrust. This cash payment
will be treated as having been received as a distribution in full
payment in exchange for the stock redeemed. Generally, any gain or loss
recognized upon such exchange will be a capital gain or loss.
The opinion of Bradley Arant Rose & White LLP is rendered solely with
respect to certain federal income tax consequences of the Merger under the Code,
and does not extend to the income or other tax consequences of the Merger under
the laws of any State or any political subdivision of any State. The opinion
also does not extend to any tax effects or consequences of the Merger to
SouthTrust, ST-Sub or ST-Bank other than those expressly stated in the opinion.
No opinion is expressed as to the federal tax treatment of the transaction under
any other provisions of the Code and regulations, or about the tax treatment of
any conditions existing at the time of, or effects resulting from, the
transaction that are not specifically covered by the opinion.
DESCRIPTION OF SOUTHTRUST CAPITAL STOCK
GENERAL
The authorized capital stock of SouthTrust consists of 500,000,000
shares of common stock, par value $2.50 per share (referred to throughout this
Proxy Statement/Prospectus as "SouthTrust Common Stock"), and 5,000,000 shares
of preferred stock, par value $1.00 per share ("SouthTrust Preferred Stock"). As
of March 31, 1999, there were 167,324,797 shares of SouthTrust Common Stock
issued and outstanding, exclusive of shares held as treasury stock, and no
shares of SouthTrust Preferred Stock were outstanding. In addition, 500,000
shares of SouthTrust Preferred Stock designated as Series A Junior Participating
Preferred Stock were reserved for issuance upon the exercise of certain rights
described below under "DESCRIPTION OF SOUTHTRUST CAPITAL STOCK -- SouthTrust
Common Stock-Stockholder Rights Plan" at p. 39.
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<PAGE> 44
Since SouthTrust is a holding company, the right of SouthTrust, and
hence the right of creditors and stockholders of SouthTrust, to participate in
any distribution of assets of any subsidiary (including ST-Bank) upon its
liquidation or reorganization or otherwise is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that claims of
SouthTrust itself as a creditor of the subsidiary may be recognized.
The following summary is not intended to be complete and is subject in
all respects to the applicable provisions of the General Corporation Law of the
State of Delaware and SouthTrust's Restated Certificate of Incorporation,
including the Certificate of Designations describing the Series A Junior
Participating Preferred Stock, and SouthTrust's Restated By-laws.
SOUTHTRUST COMMON STOCK
Dividend Rights
Holders of shares of SouthTrust Common Stock are entitled to dividends
when, as and if declared by SouthTrust's Board of Directors out of funds legally
available for payment of dividends, subject to any prior rights of any shares of
SouthTrust Preferred Stock outstanding. Under Delaware law, SouthTrust may pay
dividends out of surplus (whether capital surplus or earned surplus) or net
profits for the fiscal year in which declared or for the preceding fiscal year,
even if its surplus accounts are in a deficit position. The sources of funds for
payment of dividends by SouthTrust are its subsidiaries. Because its primary
subsidiary is a bank, payments made by such subsidiary to SouthTrust are limited
by law and regulations of the bank regulatory authorities. See "MARKET PRICE AND
DIVIDEND INFORMATION RESPECTING SHARES OF SOUTHTRUST COMMON STOCK AND SHARES OF
NAVIGATION COMMON STOCK" at p. 41
Voting Rights and Other Matters
The holders of shares of SouthTrust Common Stock are entitled to one
vote per share on all matters brought before the stockholders. The holders of
shares of SouthTrust Common Stock do not have the right to cumulate their shares
of SouthTrust Common Stock in the election of directors. SouthTrust's Restated
Certificate of Incorporation requires the vote of the holders of 70% of the
voting power of the outstanding voting securities of SouthTrust to approve a
transaction or a series of transactions with an "Interested Stockholder"
(generally defined as a holder of more than 10% of the voting stock of
SouthTrust or an affiliate of such a holder) pursuant to which SouthTrust would
be merged into or with another corporation or securities of SouthTrust would be
issued in a transaction which would permit control of SouthTrust to pass to
another entity, or similar transactions having the same effect. An exception
exists in cases in which either certain price criteria and procedural
requirements are satisfied or the transaction is recommended to the stockholders
by a majority of the members of SouthTrust's Board of Directors who are
unaffiliated with the Interested Stockholder and who were directors before the
Interested Stockholder became an Interested Stockholder.
The shares of SouthTrust Common Stock do not have any conversion
rights, and there are no redemption or sinking fund provisions applicable to the
shares of SouthTrust Common Stock. Holders of shares of SouthTrust Common Stock
are not entitled to any preemptive rights to subscribe for any additional
securities which may be issued.
Liquidation Rights
In the event of liquidation, holders of shares of SouthTrust Common
Stock will be entitled to receive pro rata any assets distributable to
stockholders with respect to the shares held by them, after payment of
indebtedness and such preferential amounts as may be required to be paid to the
holders of any shares of SouthTrust Preferred Stock issued by SouthTrust.
Provisions with Respect to Board of Directors
SouthTrust's Restated Certificate of Incorporation provides that the
members of SouthTrust's Board of Directors are divided into three classes as
nearly equal in number as possible. Stockholders elect each class for a
three-year term. At each annual meeting of stockholders of SouthTrust, the
stockholders elect roughly one-third of the members of SouthTrust's Board of
Directors for a three-year term, and the other directors remain in office until
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<PAGE> 45
their three-year terms expire. Therefore, control of SouthTrust's Board of
Directors cannot be changed in one year, and at least two annual meetings must
be held before stockholders can change a majority of the members of SouthTrust's
Board of Directors.
Special Vote Requirements for Certain Amendments to Restated Certificate of
Incorporation
The General Corporation Law of the State of Delaware and the Restated
Certificate of Incorporation and By-laws of SouthTrust provide that stockholders
may remove a director, or SouthTrust's entire Board of Directors, only for
cause. The Restated Certificate of Incorporation and By-laws of SouthTrust also
provide that the affirmative vote of the holders of at least 70% of the voting
power of the outstanding capital stock entitled to vote for the election of
directors is required to remove a director or the entire Board of Directors from
office. Stockholders may amend certain portions of the Restated Certificate of
Incorporation of SouthTrust described in certain of the preceding paragraphs,
including those related to business combinations and the classified Board of
Directors, only by the affirmative vote of the holders of 70% of the voting
power of the outstanding voting stock of SouthTrust.
Possible Effects of Special Provisions
Certain of the provisions contained in the Restated Certificate of
Incorporation and By-laws of SouthTrust described above have the effect of
making it more difficult to change SouthTrust's Board of Directors, and may make
SouthTrust's Board of Directors less responsive to stockholder control. These
provisions also may tend to discourage attempts by third parties to acquire
SouthTrust because of the additional time and expense involved and a greater
possibility of failure. As a result, these provisions may adversely affect the
price that a potential purchaser would be willing to pay for the capital stock
of SouthTrust, thereby reducing the amount a stockholder might realize in, for
example, a tender offer for the capital stock of SouthTrust.
Stockholder Rights Plan
On December 16, 1998, the Board of Directors of SouthTrust declared a
dividend to holders of SouthTrust Common Stock of record on February 22, 1999
(the "Record Date") of one right (a "Right" and collectively, the "Rights") for,
and to be attached to, each share of SouthTrust Common Stock outstanding on that
date. This new Stockholder Rights Plan replaced SouthTrust's Stockholder Rights
Plan that expired on February 22, 1999. The new Stockholder Rights Plan will
expire on February 22, 2009 unless the Rights are redeemed earlier.
Each Right entitles the holder of the Right to purchase from SouthTrust
one one-hundredth of a share of SouthTrust Preferred Stock designated as the
Series 1999 Junior Participating Preferred Stock ("Series 1999 Preferred Stock")
at a purchase price of $150.00.
At no time will the Rights have any voting power. The Rights will only
become exercisable if there is a publicly announced acquisition of, or tender
offer for, 15% or more of the SouthTrust Common Stock, and the Board of
Directors of SouthTrust determines not to redeem the Rights within ten days
after the occurrence of such event, or promptly after the Board of Directors of
SouthTrust determines that a person is an "Adverse Person."
The provisions with respect to an Adverse Person in the Stockholder
Rights Plan essentially grant the Board of Directors of SouthTrust the
flexibility of triggering certain aspects of the Stockholder Rights Plan if it
determines that a significant stockholder (a holder of 10% or more) has taken a
position in SouthTrust Common Stock with the objective of reaping short-term
financial gains to the detriment of the best long-term interests of SouthTrust
and its stockholders. The Stockholder Rights Plan could be triggered by the
Board of Directors of SouthTrust in such instance even though the stockholder
did not own 15% of the SouthTrust Common Stock.
Unless the Rights are redeemed by SouthTrust, the occurrence of certain
takeover-related events will cause the Rights to convert into the right to
acquire securities or other property of SouthTrust (or of the acquiror) at a
significant discount. These takeover-related events include the merger of
SouthTrust with and into any other person and the sale or transfer of 50% or
more of the assets or earning power of SouthTrust. The effect is to dilute the
acquiring person's interest in SouthTrust and to raise the price of acquiring
SouthTrust. Since the Rights are subject to redemption prior to the occurrence
of certain events, a potential acquiror can avoid triggering the Rights by
negotiating with SouthTrust's Board of Directors to establish a full and fair
offering price.
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<PAGE> 46
The foregoing description of the Rights and the Series 1999 Preferred
Stock is not intended to be complete and is qualified in its entirety by
reference to the Rights Agreement between SouthTrust and ChaseMellon Shareholder
Services LLC, as Rights Agent, and the Certificate of Designation for the Series
1999 Preferred Stock, copies of each of which are exhibits to the Registration
Statement of which this Proxy Statement/Prospectus forms a part.
Transfer Agent
The transfer agent for SouthTrust Common Stock is ChaseMellon
Shareholder Services LLC.
SOUTHTRUST PREFERRED STOCK
General
Under SouthTrust's Restated Certificate of Incorporation, SouthTrust's
Board of Directors is authorized without further stockholder action to provide
for the issuance of up to 5,000,000 shares of SouthTrust Preferred Stock, in one
or more series, by adopting a resolution or resolutions providing for the
issuance of such series and determining the relative rights and preferences of
the shares of any such series with respect to the rate of dividend, call
provisions, payments on liquidation, sinking fund provisions, conversion
privileges and voting rights and whether the shares shall be cumulative,
non-cumulative or partially cumulative. The holders of SouthTrust Preferred
Stock would not have any preemptive right to subscribe for any shares issued by
SouthTrust. It is not possible to state the actual effect of the authorization
and issuance of SouthTrust Preferred Stock upon the rights of holders of
SouthTrust Common Stock unless and until SouthTrust's Board of Directors
determines the price and specific rights of the holders of a series of
SouthTrust Preferred Stock. Such effects might include, however,
- restrictions on dividends on shares of SouthTrust Common Stock
if dividends on shares SouthTrust Preferred Stock have not
been paid;
- dilution of the voting power of shares of SouthTrust Common
Stock to the extent that shares of SouthTrust Preferred Stock
have voting rights, or that any share of SouthTrust Preferred
Stock is convertible into a share of SouthTrust Common Stock;
- dilution of the equity interest of shares of SouthTrust Common
Stock unless the shares of SouthTrust Preferred Stock are
redeemed by SouthTrust; and
- shares of SouthTrust Common Stock not being entitled to share
in SouthTrust's assets upon liquidation until satisfaction of
any liquidation preference granted to shares of SouthTrust
Preferred Stock.
While the ability of SouthTrust to issue shares of SouthTrust Preferred
Stock is, in the judgment of SouthTrust's Board of Directors, desirable in order
to provide flexibility in connection with possible acquisitions and other
corporate purposes, its issuance could impede an attempt by a third party to
acquire a majority of the outstanding voting stock of SouthTrust.
Series 1999 Junior Participating Preferred Stock
In connection with the adoption of the Stockholder Rights Plan
described above, SouthTrust's Board of Directors designated 2,000,000 shares of
SouthTrust's authorized but unissued SouthTrust Preferred Stock as Series 1999
Junior Participating Preferred Stock (which has been previously referred to as
the "Series 1999 Preferred Stock"). The terms of the Series 1999 Preferred Stock
are such that one share of Series 1999 Preferred Stock will be approximately
equivalent in terms of dividend and voting rights to 100 shares of SouthTrust
Common Stock. No shares of Series 1999 Preferred Stock have been issued as of
the date of this Proxy Statement/Prospectus.
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<PAGE> 47
MARKET PRICE AND DIVIDEND INFORMATION RESPECTING SHARES OF
SOUTHTRUST COMMON STOCK AND SHARES OF NAVIGATION COMMON STOCK
MARKET PRICE
The SouthTrust Common Stock is quoted on NASDAQ under the symbol SOTR.
The following table sets forth, for the periods indicated, the high and low
sales prices per share of the SouthTrust Common Stock as reported by NASDAQ. On
{________}, 1999, the last reported sale price of the SouthTrust Common Stock as
reported by NASDAQ was ${___}. All prices are adjusted to reflect a
three-for-two stock split effected on February 26, 1998.
<TABLE>
<CAPTION>
Price*
-------------------------------------
High Low
<S> <C> <C>
1997:
First Quarter........................... $ 28.0781 $ 22.7500
Second Quarter.......................... 28.2500 23.5781
Third Quarter........................... 34.4531 27.5000
Fourth Quarter.......................... 42.8281 30.6719
1998:
First Quarter........................... $ 45.1250 $ 35.7500
Second Quarter ......................... 45.0000 39.2500
Third Quarter........................... 45.3750 30.6875
Fourth.................................. 39.0000 24.8750
1999:
First Quarter........................... $ 42.3750 $ 35.3750
</TABLE>
- ------------------
* The information listed above was obtained from the National Association
of Securities Dealers, Inc., and reflects interdealer prices, without
retail markup, markdown or commissions, and may not represent actual
transactions.
Navigation Stock is not traded on any exchange, and there is no
established public trading market for such stock. There are no bid or asked
prices available for Navigation Stock. Management of Navigation is aware of
certain transactions in shares of Navigation Common Stock that have occurred
since January 1, 1997. Although the prices of all transactions are not known,
management of Navigation believes that such prices ranged from $70 to $127 per
share of Navigation Common Stock. No assurance can be given that these trades
were effected on an arm's-length basis. Transactions in shares of Navigation
Common Stock are infrequent and are negotiated privately between persons
involved in those transactions.
On April 30, 1999 and May 4, 1999 (the trading days immediately before
and after the public announcement of the Merger), the last sale prices of
SouthTrust Common Stock, as obtained from NASDAQ, were $39.844 and $40.500,
respectively; and on {__________}, 1999, the last sale price of SouthTrust
Common Stock as obtained from NASDAQ was ${____}.
DIVIDENDS
The following table sets forth, for the periods indicated, the
dividends declared by SouthTrust per share of SouthTrust Common Stock, as well
as the pro forma dividend per share (based on the number of shares of SouthTrust
Common Stock to be issued per share of Navigation Common Stock) after the
Merger. The dividends have been adjusted to reflect a three-for-two stock split
effected on February 26, 1998. Navigation has not paid any
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<PAGE> 48
cash dividends on the shares of Navigation Common Stock during the periods
indicated below and has not paid any cash dividends on the shares of Navigation
Common Stock since January, 1985.
<TABLE>
<CAPTION>
Pro Forma
SouthTrust Dividend Per
Common Stock Share of
Dividend Per Navigation
Share Stock(1)
------------------- --------------
<S> <C> <C>
1997:
First Quarter $ 0.1667 $ 1.85
Second Quarter 0.1667 1.85
Third Quarter 0.1667 1.85
Fourth Quarter 0.1667 1.85
1998:
First Quarter $ 0.1900 $ 2.11
Second Quarter 0.1900 2.11
Third Quarter 0.1900 2.11
Fourth Quarter 0.1900 2.11
1999:
First Quarter $ 0.2200 $ 2.44
</TABLE>
- -------------------------
(1) The pro forma dividend per share of Navigation Stock is equal to the
SouthTrust Common Stock dividend per share multiplied by the Conversion
Ratio and represents the dividend that would have been distributed on
the number of shares of SouthTrust Common Stock to be received for each
share of Navigation Common Stock. See "COMPARISON OF SHARES OF
SOUTHTRUST COMMON STOCK AND SHARES OF NAVIGATION STOCK" at p. 43.
Dividends paid by SouthTrust on the shares of SouthTrust Common Stock
are at the discretion of SouthTrust's Board of Directors and are affected by
certain legal restrictions on the payment of dividends as described below,
SouthTrust's earnings and financial condition and other relevant factors.
SouthTrust has increased the dividend paid on the shares of SouthTrust Common
Stock for 28 consecutive years. The current policy of SouthTrust is to pay
dividends on a quarterly basis. Subject to an evaluation of its earnings and
financial condition and other factors, including the legal restrictions on the
payment of dividends as described below, SouthTrust anticipates that it will
continue to pay regular quarterly dividends with respect to the shares of
SouthTrust Common Stock.
There are certain limitations on the payment of dividends to SouthTrust
by its bank subsidiary. As a national banking association, the amount of
dividends that SouthTrust's subsidiary bank may declare in one year, without
approval of the Comptroller, is the sum of the bank's retained net profits for
that year and its retained net profits for the preceding two years. Under rules
promulgated by the Comptroller, the calculation of net profits is more
restrictive under certain circumstances. Under the foregoing laws and
regulations, at December 31, 1998, approximately $527.7 million was available
for payment of dividends to SouthTrust by its bank subsidiary.
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<PAGE> 49
COMPARISON OF SHARES OF SOUTHTRUST COMMON STOCK
AND SHARES OF NAVIGATION COMMON STOCK
The rights of shareholders of Navigation are governed by the Articles
of Association of Navigation, the Bylaws of Navigation and the laws of the State
of Texas. The rights of stockholders of SouthTrust are governed by the Restated
Certificate of Incorporation of SouthTrust, the By-laws of SouthTrust and the
laws of the State of Delaware. After the Merger becomes effective, the rights of
Navigation shareholders who become SouthTrust stockholders will be governed by
the laws of the State of Delaware and by SouthTrust's Restated Certificate of
Incorporation and By-laws. The following summary of the rights of the holders of
SouthTrust Common Stock and the holders of Navigation Common Stock is qualified
in its entirety by reference to the Restated Certificate of Incorporation and
By-laws of SouthTrust, the Articles of Association and Bylaws of Navigation, the
General Corporation Law of the State of Delaware, and the Texas Business
Corporation Act.
DIVIDENDS
The sources of funds for payments of dividends by SouthTrust are its
subsidiaries. Since Navigation and the primary subsidiaries of SouthTrust are
financial institutions, payments made by such subsidiaries to SouthTrust and by
Navigation to its shareholders are limited by law and regulations of the bank
regulatory authorities. See "DESCRIPTION OF SOUTHTRUST CAPITAL STOCK -
SouthTrust Common Stock-Dividend Rights" at p.35 and "MARKET PRICE AND DIVIDEND
INFORMATION RESPECTING SHARES OF SOUTHTRUST COMMON STOCK AND SHARES OF
NAVIGATION COMMON STOCK" at p. 40 for information concerning the effect of such
limitations on SouthTrust's and Navigation's ability to pay dividends. The
General Corporation Law of the State of Delaware provides that, subject to any
restrictions in the corporation's certificate of incorporation, dividends may be
declared from the corporation's surplus or, if there is no surplus, from its net
profits for the fiscal year in which the dividend is declared and the preceding
fiscal year. Dividends may not be declared, however, if the corporation's
capital has been diminished to an amount less than the aggregate amount of all
capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Generally, the Texas Business
Corporation Act provides that a corporation may declare dividends unless the
distribution would either exceed the surplus of the corporation or render the
corporation insolvent. Navigation historically has not paid any dividends, has
not declared any dividends to be paid, and does not anticipate declaring and
paying dividends prior to the consummation of the Merger.
VOTING RIGHTS AND OTHER MATTERS
All voting rights of SouthTrust are vested in holders of SouthTrust
Common Stock, subject to the rights, if any, of any series of their respective
classes of preferred stock, with the holder of each share of SouthTrust Common
Stock being entitled to one vote. All voting rights of Navigation are vested in
the holders of shares of Navigation Common Stock, with the holder of each of
such share being entitled to one vote. The holders of SouthTrust Common Stock do
not have the right to cumulate their votes in the election of directors. The
Texas Business Corporation Act provides that shareholders generally have the
right to cumulate their votes in the election of directors, unless expressly
prohibited by the articles of incorporation. The Articles of Association of
Navigation do not expressly prohibit cumulative voting.
As described above under the caption "DESCRIPTION OF SOUTHTRUST
CAPITAL STOCK - SouthTrust Common Stock - Voting Rights and Other Matters," the
Restated Certificate of Incorporation of SouthTrust requires the vote of the
holders of 70% of the outstanding voting securities of SouthTrust to approve a
transaction or a series of transactions with an Interested Stockholder
(generally defined as a holder of more than 10% of the voting stock of
SouthTrust or an affiliate of such holder) pursuant to which SouthTrust would be
merged into or with another corporation or securities of SouthTrust would be
issued in a transaction which would permit control of SouthTrust to pass to
another entity, or similar transactions having the same effect. The Restated
Certificate of Incorporation of SouthTrust provides an exception in cases in
which either certain price criteria and procedural requirements are satisfied or
the transaction is recommended to the stockholders by a majority of the members
of the Board of Directors of SouthTrust who are unaffiliated with the Interested
Stockholder and who were directors before the Interested Stockholder became an
Interested Stockholder. The Articles of Association and Bylaws of Navigation do
not contain any prohibitions of or limitations on transactions between
Navigation and a related party or shareholder.
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<PAGE> 50
SouthTrust is subject to Section 203 of the Delaware General
Corporation Law. That section generally provides that a corporation may not
engage in a business combination, except with extraordinary corporate approval,
with any person deemed to be an "interested stockholder" for a period of three
years following the date that the stockholder became an interested stockholder.
An "interested stockholder" is defined as any person who directly or indirectly
owns 15% or more of the outstanding voting stock of the corporation within the
three-year period beginning immediately prior to the date on which such
determination is made. The extraordinary corporate approval must consist of
board approval prior to the time the person became an interested stockholder or
approval of the transaction by the board of directors and at least two-thirds of
the outstanding voting stock which is not owned by the interested stockholder;
in the absence of such approval, the interested stockholder must own at least
85% of the voting stock of the corporation.
Navigation is subject to Sections 13.01 et seq. of the Texas Business
Corporation Act. That part governs business combinations involving affiliated
shareholders, and defines an "affiliated shareholder" as any person who
beneficially owns 20% or more of the voting shares of a corporation. Part
Thirteen prohibits a corporation from entering into a business combination with
an affiliated shareholder during the three year period immediately following the
affiliated shareholder's acquisition date (generally defined as the date that a
person first becomes the beneficial owner of 20% or more of the outstanding
voting shares) unless any of the following apply:
- the business combination or the acquisition of shares by
the affiliated shareholder on the affiliated shareholder's
acquisition date is approved by the board of directors
before the acquisition date;
- the business combination is approved by two-thirds of the
voting shares not beneficially owned by the affiliated
shareholder;
- the affiliated shareholder became an affiliated shareholder
inadvertently, and the affiliated shareholder (1) divests
itself of voting shares such that it no longer beneficially
owns 20% or more of the voting shares and (2) would not at
any time within the three year period have been an
affiliated shareholder but for the inadvertent acquisition;
- the affiliated shareholder was an affiliated shareholder
on December 31, 1996 and continued to be an affiliated
shareholder until the announcement of the business
combination;
- the affiliated shareholder became an affiliated shareholder
through a transfer of shares by will or intestate
succession and continuously was an affiliated shareholder
until the announcement of the business combination; or
- the business combination is with a domestic wholly owned
subsidiary which is not an affiliate of the affiliated
shareholder except by reason of the affiliated
shareholder's beneficial ownership of voting shares.
The effect of the business combination and affiliated transactions
provisions is to make more difficult the acquisition of a majority control of a
corporation or the use of its assets to finance such acquisition.
The Delaware General Corporation Law enumerates several situations in
which class voting is required with respect to amendments to a corporation's
certificate of incorporation, whether or not the holders of such shares are
entitled to vote thereon by the provisions of the certificate of incorporation.
Class voting is required on amendments which:
- increase or decrease the aggregate number of authorized
shares;
- increase or decrease the par value of the shares of such
class; or
- alter or change the powers, preferences or special rights
of the shares of such class as to affect them adversely.
However, in such situations, only the shares of the series affected by the
amendment will be considered a separate class for the purpose of the class
voting requirements. Furthermore, the authorized shares of any class of stock
may
44
<PAGE> 51
be increased or decreased by the affirmative vote of a majority of the
stockholders, irrespective of the class voting requirement set forth above, if
so provided in the original certificate of incorporation or in any amendments
thereto which created such class of stock or which were authorized by a
resolution adopted by the affirmative vote of the holders of a majority of
shares of such class.
The Texas Business Corporation Act enumerates several situations in
which class voting is required with respect to amendments of a corporation's
articles of incorporation, whether or not the shareholders are entitled to vote
thereon by the provisions of the articles of incorporation. Class voting is
required on amendments which:
- increase or decrease the aggregate number of authorized
shares of such class or series;
- increase or decrease the par value of the shares of such
class, including changing shares having par value into
shares without par value, or shares without par value into
shares with par value;
- effect an exchange, reclassification, or cancellations of
all or part of the shares of such class or series;
- effect an exchange, or create a right of exchange, of all
or any part of the shares of another class into the shares
of such class or series;
- change the designations, preferences, limitations, or
relative rights of the shares of such class or series;
- change the shares of such class or series, whether with or
without par value, into the same or a different number of
shares, either with or without par value, of the same
class or series or another class or series;
- create a new class or series of shares having rights and
preferences equal, prior, or superior to the shares of
such class or series, or increase the rights and
preferences of any class or series having rights and
preferences equal, prior, or superior to the shares of
such class or series, or increase the rights and
preferences of any class or series having rights or
preferences later or inferior to the shares of such class
or series in such a manner as to become equal, prior, or
superior to the shares of such class or series;
- divide the shares of such class into series and fix and
determine the designation of such series and the
variations in the relative rights and preferences between
the shares of such series;
- limit or deny the existing preemptive rights of the shares
of such class or series;
- cancel or otherwise affect dividends on the shares of such
class or series which had accrued but had not been
declared; or
- include in or delete from the articles of incorporation
any provisions required or permitted to be included in the
articles of incorporation of a close corporation.
Irrespective of the class voting requirements set forth above, class
voting is not required on amendments undertaken pursuant to authority granted to
the board of directors in the articles of incorporation to establish series of
unissued shares of any class of stock. Voting by class or series is required for
approval of a plan of merger if (1) the plan contains a provision that if
contained in a proposed amendment to the articles of incorporation would require
approval by that class or series, or (2) that class or series is entitled under
the articles of incorporation to vote as a class thereon.
The Restated Certificate of Incorporation of SouthTrust provides that
the members of SouthTrust's Board of Directors are to be divided into three
classes as nearly equal as possible. Each such class is elected for a three-year
term. At each annual meeting of stockholders, the stockholders elect roughly
one-third of the members of SouthTrust's Board of Directors for a three-year
term, and the other directors will remain in office. Therefore, control of
SouthTrust's Board of Directors cannot be changed in one year, and at least two
annual meetings must be
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held before a majority of the members of SouthTrust's Board of Directors can be
changed. Without this provision in the By-laws of SouthTrust, all directors
would stand for election at each annual meeting. The Bylaws of Navigation
provide that the entire Board of Directors of Navigation is to be elected by
majority vote of the shares entitled to vote at an annual meeting of
shareholders at which such election is to occur. Directors so elected serve for
a term of one year and until their successors shall be elected and shall
qualify.
Both the Delaware General Corporation Law and Texas Business
Corporation Act provide (unless otherwise provided in a corporation's charter or
bylaws), that the stockholders or shareholders, as the case may be, may remove a
director, or the entire board of directors, with or without cause by vote of the
holders of a majority of the shares of capital stock of the corporation then
entitled to vote on the election of directors. The Restated Certificate of
Incorporation and By-laws of SouthTrust, however, provide that the affirmative
vote of the holders of at least 70% of the voting power of the outstanding
capital stock entitled to vote for the election of directors is required to
remove a director or SouthTrust's entire Board of Directors from office and such
removal may be effected only for cause. The vacancy created by any such removal
will then be filled by majority vote of the directors then in office, and the
successor director so elected will fill the unexpired term of the director
removed from office.
The By-laws of SouthTrust provide that the remaining directors may
fill any vacancies on SouthTrust's Board of Directors, caused by the death or
resignation of a director or the creation of a new directorship. A person
selected by the remaining directors to fill a vacancy will serve until the
annual meeting of stockholders at which the term of the class of directors to
which such director has been appointed expires. Therefore, if a director who was
recently elected to a three-year term resigns, the remaining directors will be
able to select a person to serve the remainder of that three-year term, and such
person will not be required to stand for election until the third annual meeting
of stockholders after such director's appointment. The Bylaws of Navigation
provide that the shareholders may authorize the Board of Directors to increase
the number of directors by no more than two directors in any one year and, by a
majority vote, appoint qualified persons to fill the resulting vacancies. The
Bylaws and Articles of Association of Navigation do not otherwise address
vacancies created in the Board of Directors.
Under the Delaware General Corporation Law (unless otherwise provided
in a corporation's charter), any action required or permitted to be taken by the
stockholders of a corporation may be taken without a meeting and without a
stockholder vote if a written consent is signed by the holders of the shares of
outstanding stock having the requisite number of votes that would be necessary
to authorize such action at a meeting of stockholders at which all shares
entitled to vote thereon were present and voted. Under the Restated Certificate
of Incorporation of SouthTrust, action by written consent of the stockholders is
prohibited. Further, under the Restated Certificate of Incorporation and By-laws
of SouthTrust, the stockholders are not permitted to call a special meeting of
stockholders or to require that SouthTrust's Board of Directors call such a
meeting. Under the Texas Business Corporation Act, any action required or
permitted to be taken by the shareholders of a corporation may be taken without
a meeting and without a shareholder vote if a written consent is signed by all
of the holders of the shares entitled to vote on the action.
Certain portions of the Restated Certificate of Incorporation of
SouthTrust described in certain of the preceding paragraphs, including those
related to business combinations and SouthTrust's classified Board of Directors,
may be amended only by the affirmative vote of the holders of 70% of the
outstanding voting stock of SouthTrust. Navigation's Articles of Association
generally may be amended by shareholders upon recommendation of the Board of
Directors. Amendments to the Articles of Association of Navigation also require
the approval of the Texas Department of Banking (the "Texas Department"). The
Bylaws of Navigation may be amended by the affirmative vote of a majority of the
shareholders present and voting at any special or annual meeting, provided a
statement of the proposed amendment is contained in the notice of the meeting,
or by the affirmative vote of a majority of all the directors present and voting
at any regular or special meeting of Navigation's Board of Directors, provided
that in the case of a special meeting a statement of the proposed amendment is
contained in the notice of the meeting.
The provisions contained in the Restated Certificate of Incorporation
of SouthTrust described above have the effect of making it more difficult to
change SouthTrust's Board of Directors, and may make SouthTrust's Board of
Directors less responsive to shareholder control. Those provisions also may tend
to discourage attempts by third parties to acquire SouthTrust because of the
additional time and expense involved and a greater possibility of
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<PAGE> 53
failure. This also can affect the price that a potential purchaser would be
willing to pay for the stock of SouthTrust, thereby reducing the amount a
stockholder might realize in, for example, a tender offer for the stock of
SouthTrust.
DISSENT AND APPRAISAL RIGHTS
Under Section 262 of the General Corporation Law of Delaware (the
"Delaware Dissent Provisions"), a stockholder has no right to dissent to a
merger if, at the record date, the shares of the corporation were listed on a
national securities exchange, designated as a national market system security on
NASDAQ or held by more than 2,000 stockholders. Since the shares of SouthTrust
Common Stock are listed on NASDAQ and held by more than 2,000 stockholders of
record, the stockholders of SouthTrust do not have any right to dissent pursuant
to the Delaware Dissent Provisions.
Under Articles 5.11 and 5.12 of the Texas Business Corporation Act
(the "Texas Dissent Provisions"), a shareholder generally has the right to
dissent from a merger if shareholder approval was required and if the
shareholder holds shares of a class or series that was entitled to vote thereon.
RIGHTS ON LIQUIDATION
In the event of liquidation, the holders of SouthTrust Common Stock
and the holders of Navigation Common Stock will be entitled to receive pro rata
any assets distributable to stockholders and shareholders, as the case may be,
with respect to the shares held by them, after payment of indebtedness and such
preferential amounts as may be required to be paid to the holders of any
preferred stock presently outstanding or hereafter issued by either corporation.
PREEMPTIVE RIGHTS
The holders of SouthTrust Common Stock do not have any preemptive
rights to purchase additional shares of any class of securities, including
common stock, of SouthTrust, which may hereafter be issued.
The Texas Business Corporation Act provides that a shareholder
generally has preemptive rights to purchase additional shares of common stock
issued for cash, unless otherwise stated in the Articles of Incorporation. The
Articles of Association of Navigation neither deny nor limit shareholders'
preemptive rights.
REPORTS TO STOCKHOLDERS AND SHAREHOLDERS
The SouthTrust Common Stock is registered under the Exchange Act,
and, therefore, SouthTrust is required to provide annual reports containing
audited financial statements to stockholders and to file other reports with the
Commission and solicit proxies in accordance with the rules of the Commission.
SouthTrust also provides reports to its stockholders on an interim basis
containing unaudited financial information.
The Navigation Common Stock is not registered under the Exchange Act.
Navigation provides its shareholders with annual reports containing audited
financial statements of Navigation. In addition, Navigation regularly files
reports with the FDIC and the Texas Department, certain of which may be
inspected by the public.
STOCKHOLDERS' RIGHTS PLAN
As described above under the caption "DESCRIPTION OF SOUTHTRUST
CAPITAL STOCK - SouthTrust Common Stock - Stockholder Rights Plan," presently
attached to each share of SouthTrust Common Stock is one Right issued pursuant
to the Rights Agreement described under such caption. Each Right entitles the
holder thereof to purchase from SouthTrust one one-hundredth of a share of
Series 1999 Preferred Stock at the Purchase Price. Navigation has not adopted
any similar plan.
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SUPERVISION AND REGULATION
SOUTHTRUST
General
SouthTrust is a bank holding company within the meaning of the Bank
Holding Company Act and is registered with the Federal Reserve Board. ST-Bank,
SouthTrust's banking subsidiary, is subject to restrictions under federal law
which limit the transfer of funds by ST-Bank to SouthTrust and its nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments or
asset purchases. Such transfers by ST-Bank to SouthTrust or any nonbanking
subsidiary are limited in amount to 10% of ST-Bank's capital and surplus and,
with respect to SouthTrust and all such nonbanking subsidiaries, to an aggregate
of 20% of ST-Bank's capital and surplus. Furthermore, such loans and extensions
of credit are required to be secured in specified amounts. The Bank Holding
Company Act also prohibits, subject to certain exceptions, a bank holding
company from engaging in or acquiring direct or indirect control of more than 5%
of the voting stock of any company engaged in nonbanking activities. An
exception to this prohibition is for activities expressly found by the Federal
Reserve Board to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
As a bank holding company, SouthTrust is required to file with the
Federal Reserve Board periodic reports and such additional information as the
Federal Reserve Board may require. The Federal Reserve Board may also make
examinations of SouthTrust and each of its subsidiaries.
The approval of the Comptroller is required for any dividend proposed
to be paid by ST-Bank to SouthTrust if the total of all dividends declared by
ST-Bank in any calendar year would exceed the total of its retained net profits,
as defined by the Comptroller, for that year, combined with its retained net
profits for the preceding two years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. Under the foregoing laws and
regulations, at December 31, 1998, approximately $527.7 million was available
for payment of dividends to SouthTrust by its subsidiaries, primarily ST-Bank.
The payment of dividends by ST-Bank may also be affected by other factors, such
as the maintenance of adequate capital for ST-Bank. In addition to the foregoing
restrictions, the Federal Reserve Board has the power to prohibit the payment of
dividends by bank holding companies if their actions constitute unsafe or
unsound practices. The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board's view that a bank holding company experiencing earnings
weaknesses should not pay cash dividends that exceed its net income or that
could only be funded in ways that weaken the bank holding company's financial
health, such as by borrowing. Furthermore, the Comptroller has the authority to
prohibit the payment of dividends by a national bank when it determines such
payment to be an unsafe and unsound banking practice.
Capital Adequacy
Under the Federal Reserve Board's risk-based capital guidelines
applicable to SouthTrust, the minimum ratio of capital to risk-weighted assets
(including certain off-balance sheet items, such as standby letters of credit)
is 8%. To be considered a "well capitalized" bank under the guidelines, a bank
must have a total risk-based capital ratio in excess of 10%. At December 31,
1998, ST-Bank was considered "well capitalized." Under these guidelines, at
least half of the total capital is to be comprised of common equity, retained
earnings and a limited amount of perpetual preferred stock, after subtracting
certain intangibles, and certain other adjustments ("Tier 1 capital"). The
remainder may consist of perpetual debt, mandatory convertible debt securities,
a limited amount of subordinated debt, other preferred stock not qualifying for
Tier 1 capital and a limited amount of loan loss reserves. ST-Bank is subject to
similar capital requirements adopted by the Comptroller. In addition, the
Federal Reserve Board, the Comptroller and the Federal Deposit Insurance
Corporation (the "FDIC") have adopted a minimum leverage ratio (Tier 1 capital
to adjusted quarterly average assets) of 3%. Generally, banking organizations
are expected to operate well above the minimum required capital level of 3%
unless they meet certain specified criteria, including that they have the
highest regulatory ratings. Most banking organizations are required to maintain
a leverage ratio of 3% plus an additional cushion of at least 1% to 2%. The
guidelines also provide that banking organizations experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
upon intangible assets. On December 31, 1998, ST-Bank had a Tier 1 capital ratio
of 7.07%, a total risk-based capital ratio of 10.25% and a leverage ratio of
6.56%.
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Failure to meet capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal regulatory
authorities, including the termination of deposit insurance by the FDIC,
issuance of a capital directive, a prohibition on the taking of brokered
deposits and certain other restrictions on its business.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depositary institution regulatory and
funding provisions of the Federal Deposit Insurance Act as well as several other
federal banking statutes. Among other things, FDICIA requires the federal
banking regulators to take prompt corrective action in respect of depositary
institutions that do not meet minimum capital requirements. FDICIA establishes
five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, is adequately capitalized if it meets each such measure, is
undercapitalized if it fails to meet any such measure, is significantly
undercapitalized if it is significantly below such measure and is critically
undercapitalized if it fails to meet any critical capital level set forth in
applicable regulations. The critically undercapitalized level occurs where
tangible equity is less than 2% of total tangible assets or less than 65% of the
minimum leverage ratio to be prescribed by regulation (except to the extent that
2% would be higher than such 65% level). A depository institution may be deemed
to be in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions became subject to
restrictions on borrowing from the Federal Reserve System, effective as of
December 19, 1993. In addition, undercapitalized depository institutions are
subject to growth limitations and are required to submit capital restoration
plans. A depository institution's holding company must guarantee the capital
plan, up to an amount equal to the lesser of 5% of the depository institution's
assets at the time it becomes undercapitalized or the amount of the capital
deficiency when the institution fails to comply with the plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. If a depository institution
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
Source of Strength
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
The Riegle-Neal Interstate Banking and Branching Efficiency Act
The Interstate Banking Act provides that, adequately capitalized and
managed bank holding companies are permitted to acquire banks in any state.
State laws prohibiting interstate banking or discriminating against out-of-state
banks were preempted as of the effective date, although states were permitted to
require that target banks located within the state be in existence for a period
of up to five years before such bank may be subject to the Interstate Banking
Act. The Interstate Banking Act establishes deposit caps which prohibit
acquisitions that would result in the acquiror controlling 30% or more of the
deposits of insured banks and thrifts held in the state in which the acquisition
or merger is occurring or in any state in which the target maintains a branch or
10% or more of the deposits nationwide. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state acquirors,
and the federal deposit caps apply only to initial entry acquisitions.
In addition, the Interstate Banking Act provides that as of June 1,
1997, adequately capitalized and managed banks may engage in interstate
branching by merging banks in different states and allowing banks to maintain
branches in states other than the states where they maintain their principal
place of business. Acting
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pursuant to this authorization, SouthTrust, effective June 2, 1997, consolidated
all of its then existing banking subsidiaries into its largest banking
subsidiary and changed the subsidiary's name to SouthTrust Bank, National
Association.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in the state legislatures and
before the various bank regulatory agency. The likelihood and timing of any such
changes and the impact such changes might have on SouthTrust and its
subsidiaries, however, cannot be determined at this time.
NAVIGATION
Navigation is chartered by the State of Texas. It is subject to
comprehensive regulation, examination and supervision by the Texas Department
and the FDIC, and is subject to other laws and regulations applicable to banks.
Such regulations include limitations on loans to a single borrower and to its
directors, officers and employees; restrictions on the opening and closing of
branch offices; the maintenance of required capital and liquidity ratios; the
granting of credit under equal and fair conditions; disclosure of the cost and
terms of such credit; restrictions as to permissible investments and governance
of other aspects of Navigation's business and operations. Navigation is examined
periodically by both the Texas Department and the FDIC, and submits regular
periodic reports regarding its financial condition and other matters to each of
them. Both the Texas Department and the FDIC have a broad range of powers to
enforce regulations under their respective jurisdictions, and to take
discretionary actions determined to be for the protection of the safety and
soundness of Navigation, including the institution of cease and desist orders
and the removal of directors and officers. Navigation's deposit accounts are
insured by the Bank Insurance Fund of the FDIC up to a maximum of $100,000 per
insured depositor. The FDIC issues regulations, has authority to conduct
periodic examinations, requires the filing of reports and generally supervises
the operations of its insured banks. This supervision and regulation is intended
primarily for the protection of depositors.
Any insured bank which is not operated in accordance with or does not
conform to FDIC regulations, policies and directives may be sanctioned for
non-compliance. Proceedings may be instituted against any insured bank or any
director, officer, or employee of such bank engaging in unsafe and unsound
practices, including the violation of applicable laws and regulations. The FDIC
has the authority to terminate insurance of accounts pursuant to procedures
established for that purpose.
CERTAIN INFORMATION CONCERNING THE BUSINESS OF NAVIGATION
GENERAL
Navigation was organized in 1974 as a commercial Texas banking
corporation with the primary purpose of serving the banking needs of southeast
Houston. Navigation began operating on January 16, 1975. Navigation is
headquartered in Houston, Texas, and as of March 31, 1999, Navigation had assets
of $81 million, deposits of $73 million, and stockholder's equity of $7 million.
Since its origination in 1974, Navigation has provided both
traditional commercial banking services, including but not limited to interest
and non-interest bearing checking accounts, savings accounts, money market
deposit accounts, certificates of deposit, individual retirement accounts as
well as commercial loans, real estate mortgage loans, and consumer loans.
Navigation provides commercial banking services primarily to
residents of Houston, Texas through four banking offices: its main office
located at 3801 Navigation Boulevard, and three branch offices located at 4410
North Freeway, 3730 Kirby, Suite 100 and 2800 Woodridge at the Gulf Freeway.
The business of Navigation consists primarily of attracting retail
deposits from the general public in the area serviced by Navigation's offices
and using the funds generated from the deposits to make secured and unsecured
commercial and consumer loans and loans for the purchase, construction,
financing, and refinancing of commercial and residential real estate in
Navigation's primary market area.
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The principal sources of funds for Navigation's lending and
investment activities are deposits, repayment of loans, and proceeds from the
sale of investment securities. Navigation's principal expenses are interest paid
on deposits and general operating expenses such as salaries, employee benefits,
and occupancy expenses.
Navigation offers a range of short to medium term commercial and
consumer loans. Commercial loans include, but are not limited to, both secured
and unsecured financing for working capital (including inventory and
receivables), business expansion loans (including acquisition of real estate and
improvements), purchase of equipment and machinery, as well as construction of
investment property such as residences, apartment complexes, and office
buildings. Consumer purpose loans include secured and unsecured loans for
financing automobiles, home improvements, and other personal expenditures.
Navigation also originates a variety of residential real estate loans including
mortgage loans that are collateralized by first or second mortgages for
purchase, refinance, or home improvement.
Navigation provides a variety of banking services to individuals,
businesses, and other institutions located in Navigation's primary market area.
Deposit services include non-interest and interest bearing checking accounts,
money market deposit accounts, savings accounts, certificates of deposit, and
individual retirement accounts. Interest bearing deposit products carry rates of
interest that Navigation believes are generally competitive to other rates that
are offered in the market area served by Navigation. All deposit account service
charges are also competitive with other fee schedules offered in the market area
served by Navigation. All deposit accounts are insured by FDIC to the maximum
extent provided by law.
Navigation offers ATM services at its three branch offices. All ATM
cards issued by Navigation provide its customers with access to local, state,
national, and international ATM networks. Navigation also offers full teller
services, safe deposit boxes, wire transfer services, direct deposit services,
ACH receipt and drive in banking services and night depository services at all
of its locations.
Navigation encounters vigorous competition both in making loans and
attracting deposits. The deregulation of the banking industry and the evolution
of interstate banking has created a highly competitive environment for
commercial banking in Navigation's market area. Navigation competes with other
local, regional, and national commercial banks as well as with credit unions,
finance companies, security brokerage companies, investment management firms,
mutual funds, insurance companies, and other financial intermediaries operating
in Navigation's market area. Many of these competitors have substantially
greater resources and have higher lending limits than Navigation, and they also
offer certain services, such as fiduciary services, that Navigation does not
provide.
Harris County, Texas is serviced by approximately 648 commercial
banks, 138 credit unions, 67 savings banks and approximately 850 brokerage
firms. Competition among financial institutions is largely based upon interest
rates offered on deposit accounts and loans, service charges on deposits, the
quality of services rendered, the convenience of banking facilities, and in the
case of commercial borrowers, relative lending limits.
As is the case with all financial institutions, generally
Navigation's operations and profitability are significantly influenced by
general economic conditions and by the related monetary and fiscal policies of
the Federal Reserve System. Deposit flows and interest rates on competing
investments and general market rates of interest influence Navigation's cost of
funds. Lending activities are affected by the demand for financing of real
estate and other types of loans which in turn are affected by the interest rate
at which such financing may be offered and other factors that affect local
demand and availability of funds.
EMPLOYEES
As of March 31, 1999, Navigation had 41 full time employees and 4
part time employees, none of whom are represented by a collective bargaining
agreement. Management believes that employee relations are good.
DESCRIPTION OF PROPERTIES
The main office of Navigation is located at 3801 Navigation
Boulevard, Houston, Texas, which location is subject to two leases, both of
which are due to expire in 2004. Of the remaining three branch office locations,
two are leased and one is owned in fee simple. The branch office located at 4410
North Freeway is leased and the lease
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is due to expire in 2008, unless Navigation exercises its right to terminate the
lease earlier in 2003 upon payment of an early termination fee of $20,000. The
branch office located at 3730 Kirby, Suite 100 is subject to a lease which is
due to expire in 2005.
LEGAL PROCEEDINGS
Navigation is from time to time a party to litigation which arises in
the normal course of Navigation's business. Navigation does not have any pending
litigation that separately or in the aggregate is currently expected to have a
material adverse effect upon the operating results or financial condition of
Navigation.
REGULATION AND LEGISLATION
As a state chartered bank, Navigation is subject to extensive
examination by the Texas Department. Navigation is also subject to regulation
and examination by the FDIC. Navigation files reports with both regulatory
bodies concerning Navigation's financial condition and must obtain approval from
those regulatory agencies prior to entering into certain transactions. Periodic
safety and soundness examinations are performed by the Texas Department and by
the FDIC. Both regulatory authorities monitor Navigation's compliance with all
applicable regulations and laws on a continuous basis.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Navigation's officers and directors and certain business
organizations and individuals associated with them have been customers of
Navigation, have had banking transactions with Navigation, and are expected to
continue such transactions in the future. In connection with such transactions,
Navigation's directors and officers have borrowed funds from time to time for
various business and personal reasons. The extensions of credit made by
Navigation to its directors and officers (1) were made in the ordinary course of
business, (2) were made on substantially the same terms, including interest
rates and collateral requirements as those prevailing at the time for comparable
transactions with other persons, and (3) do not involve more than a normal risk
of collectibility or present other unfavorable features.
BENEFICIAL OWNERSHIP OF NAVIGATION COMMON STOCK
The following table sets forth, as of May 31, 1999, (a) the names and
addresses of the persons known by Navigation to be beneficial owners of five
percent (5%) or more of the issued and outstanding shares of Navigation Common
Stock, and the name of each director and executive officer of Navigation who is
a beneficial owner of shares of Navigation Common Stock and (b) the number and
percentage of shares of Navigation Common Stock beneficially owned by each such
shareholder, director and executive officer and by all of the directors and
executive officers of Navigation as a group.
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<TABLE>
<CAPTION>
Number of Shares of Percentage of Total
Navigation Common Stock Shares of Navigation
Beneficial Owner Beneficially Owned(1) Common Stock(2)
---------------- --------------------- ---------------
<S> <C> <C>
5% OR MORE SHAREHOLDERS:
Larry Hausler(3)(4) 6,698(5) 15.45
4600 Gulf Freeway, Suite 600
Houston, Texas 77023
Charles A. Stanley(3) 4,264.25(5)(6) 9.84
Route 5, Box 5144
Pearland, Texas 77584
Jerry E. Winters(3)(4) 39,816.5(7) 91.86
321 Admiral Circle
Galveston, Texas 77551
William C. Woodby(3)(4) 39,816.5(8) 91.86
Post Office Box 228
Houston, Texas 77001
Woodby Family 7,954.5(5) 18.35
Partnership, Ltd.
Post Office Box 228
Houston, Texas 77001
DIRECTORS AND EXECUTIVE OFFICERS:
John M. Corder 551(5) 1.27
Paul W. Jury, Jr. 551(5) 1.27
R.D. Mitchell 100 0.23
James Newton 551(5) 1.27
Larry Neeley 551(5) 1.27
All Directors and Executive Officers
as a Group
(a total of 9 people) 39,916.5 92.09
</TABLE>
(1) Under applicable regulations of the Securities and Exchange Commission,
shares are considered to be beneficially owned by a person if such person
either (a) directly or indirectly has or shares a power to vote or dispose
of the shares whether or not such person has any economic interest in the
shares, or (b) has the right to acquire such shares within 60 days of the
date of this Proxy Statement/Prospectus. Unless otherwise indicated, the
named beneficial owner has the sole voting and investment power with
respect to the shares reported.
(2) For the purpose of computing beneficial ownership and the percentage of
outstanding shares held by each person or group of persons on a given
date, shares which such person or group has the right to acquire within 60
days after such date are shares for which such person has beneficial
ownership and are deemed to be outstanding for purposes of computing the
percentage for such person, but are not deemed to be outstanding for the
purpose of computing the percentage of any other person.
(3) Messrs. Hausler, Stanley, Winters and Woodby are also directors of
Navigation.
(4) Messrs. Hausler, Winters and Woodby are also executive officers of
Navigation.
(5) The shares of Navigation Common Stock beneficially owned by Messrs.
Hausler, Stanley, Corder, Jury, Newton and Neeley and by the Woodby
Family Partnership, Ltd. are subject to the provisions of the Voting and
Stock Restriction
53
<PAGE> 60
Agreement and, consequently, are included in the 39,816.5 shares of
Navigation Common Stock over which Messrs. Winters and Woodby have joint
voting control.
(6) The number of shares beneficially owned includes 551 shares of Navigation
Common Stock owned jointly with Mr. Stanley's spouse, Nancy R. Stanley.
(7) The number of shares beneficially owned represents the total number of
shares of Navigation Common Stock over which Mr. Winters has joint voting
control pursuant to the Voting and Stock Restriction Agreement. However,
in his individual capacity, Mr. Winters is the holder of record of 8229.5
shares of Navigation Common Stock.
(8) The number of shares beneficially owned represents the total number of
shares of Navigation Common Stock over which Mr. Woodby has joint voting
control pursuant to the Voting and Stock Restriction Agreement. Mr.
Woodby is the sole general partner of the Woodby Family Partnership, Ltd.
NAVIGATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
This analysis has been prepared to provide insight into the financial
condition of Navigation and addresses the factors which have affected
Navigation's results of operation for the three month periods ended March 31,
1999 and 1998, and for the fiscal years ended December 31, 1998, 1997 and 1996.
Navigation's financial statements and accompanying notes which follow are an
integral part of this review and should be read in conjunction with it.
Navigation conducts a general commercial banking business in Harris
County, Texas, and in the surrounding areas. The business consists primarily of
attracting deposits from the general public and applying those funds for the
origination of loans for commercial, consumer, and residential purposes.
Navigation's profitability depends primarily on net interest income which is the
difference between interest income generated from interest earning assets (i.e.,
loans and investments) less interest expenses incurred on interest bearing
liabilities (i.e., customer and borrowed funds). Net interest income is affected
by the relative amounts of interest earning assets, interest bearing liabilities
and the interest rates paid on these balances.
Net interest income is dependent upon Navigation's interest rate
spread, which is the difference between the average yield earned on interest
earning assets and the average rate paid on interest bearing liabilities. When
the interest that is generated on interest earning assets exceeds the interest
that is paid on interest bearing liabilities, Navigation generates a positive
interest rate spread (net rate of yield). During 1998 Navigation's yield on net
average earning assets was 6.47%, and for the three month period ending March
31, 1999 Navigation's yield on net average earning assets was 6.3%. During 1997
and 1996 Navigation's yield on net average earning assets was 6.63% and 6.28%,
respectively. The net yield is impacted by interest rates, deposit flows, and
loan demand.
In addition, Navigation's profitability is affected by such factors
as the level of non-interest income and expenses, the provision for loan losses,
and the effective tax rate. Non-interest income consists primarily of service
charges and other deposit fees, and also fees raised from mortgage origination
activities. Non-interest expense consists primarily of compensation and
benefits, occupancy related expenses, and other operating expenses.
Since the commencement of banking operations in 1975, Navigation's
total assets have grown to $80,808,833 million as of March 31, 1999. To augment
it's normal growth and to achieve greater market share, Navigation established 3
branch facilities. The branches have contributed to the growth of Navigation
and, as of March 31, 1999 Navigation's branch facilities account for 46.6% of
Navigation's total deposits. Navigation has continued to sustain its growth
while maintaining a strong capital position through the generation and retention
of profits.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1999 and 1998
For the three month period ended March 31, 1999, Navigation reported
net income of approximately $250,189, or $5.77 per outstanding share of stock,
as compared to a net income of $256,258 or $5.91 per
54
<PAGE> 61
outstanding share of stock for the three month period ended March 31, 1998,
which is a decrease of $6,069. Basic net income for the three month period ended
March 31, 1999 was less than the three month period ended March 31, 1998. Total
assets as of March 31, 1999 were approximately $80,808,833 which is an increase
of $5,610,203 or 8% over March 31, 1998. Net interest earnings increased to
approximately $1,122,439 as of March 31, 1999, which is an increase of
approximately $103,112, or 10.1% over March 31, 1998.
Total non-interest income for the three month period ended March 31,
1999 was approximately $201,782 as compared to total non-interest income of
approximately $205,701 for the three month period ended March 31, 1999, a
decrease of $3,919 or 1.9%. Total other operating expenses were $933,395 for the
three month period ended March 31, 1999, as compared to $782,845 for the three
month period ended March 31, 1998, an increase of 19.2%.
Navigation's loans totaled approximately $54,799,917 at March 31,
1999, an increase of $5,628,391, or 11.4% over March 31, 1998. The allowance for
loan losses was $698,350, or 1.2 % of total outstanding loans at March 31, 1999,
which is up from $667,363, or 1.3% of total loans at March 31, 1998.
Navigation's yield on net average earning assets during the three
month period ended March 31, 1999 was 6.25%, which compared to a yield on net
average earnings of 6.63% during the three month period ended March 31, 1998.
Comparison of the Fiscal Years Ended December 31, 1998 and 1997
For the year ended December 31, 1998, Navigation reported net income
of $1,615,587 or $37.28 per share of outstanding stock, as compared to net
income of $1,001,764 or $23.12 per outstanding share of stock for the year ended
December 31, 1997.
Net interest income before provision for loan losses for the year
ended December 31, 1998 was approximately $4,494,998 or 6.5% of average net
earning assets, as compared to $3,856,816 or 6.6% of average net earning assets
for the year ended December 31, 1997. The increase in net interest income from
1998 and 1997 was due primarily to an increase in net earning assets.
Navigation's total assets were approximately $80,322,103 and
$68,745,323 at December 31, 1998 and 1997, respectively. Total assets increased
approximately $11,576,780 or 16.8% from December 31, 1997, to December 31, 1998.
Navigation's earning assets were approximately $72,208,559 at December 31, 1998,
representing an increase of $11,536,142 or 19% from December 31, 1997.
Navigation's loans totaled approximately $53,517,014 at December 31,
1998, an increase of $4,785,544 or 9.8% from December 31, 1997. The allowance
for loan losses was $698,895 or 1.3% of total outstanding loans at December 31,
1998. This compares to allowance for loan losses of $626,164 or 1.3% of total
outstanding loans as of December 31, 1997.
Comparison of Fiscal Years Ended December 31, 1997 and 1996
For the year ended December 31, 1997, Navigation reported net income
of $1,001,770 or $23.12 per outstanding share as compared to net income of
$683,984 or $15.78 per outstanding share for the year ended December 31, 1996.
The 1997 net income was an increase of $318,000 from 1996.
Net interest income before provision of loan losses for the year
ended December 31, 1997 was approximately $3,856,816 or 6.63% of average net
earning assets, as compared to $3,064,600 or 6.29% of average net earning assets
for the year ended December 31, 1996. The increase in net interest income from
1996 to 1997 was due primarily to an increase in net earning assets.
Navigation's total assets were approximately $68,745,373 and $63,466,068 at
December 31, 1997 and 1996, respectively. Total assets increased approximately
$5,279,000 or 8.3% from December 31, 1996 to December 31, 1997. Navigation's
earning assets were approximately $60,672,417 at December 31, 1997, which
represents an increase of $6,145,330 or 11.3% from December 31, 1996.
Navigation's loans totaled approximately $48,731,470 at December 31,
1997 which is an increase of $10,624,684 or 27.9% from December 31, 1996. The
allowance for loan losses was $626,163 or 1.3% of total
55
<PAGE> 62
outstanding loans at December 31, 1997. This compares to an allowance for loan
losses of $465,722 or 1.2% of total loans at December 31, 1996.
NET INTEREST INCOME
Net interest income, which constitutes the principal source of income
for Navigation, represents the difference between interest income on interest
earning assets and interest expense on interest bearing liabilities. The primary
interest earning assets of Navigation are loans made to businesses and
individuals. Interest bearing liabilities consist primarily of time deposits,
interest bearing checking accounts ("NOW accounts"), savings deposits, money
market deposits, and individual retirement accounts. Funds generated by these
sources are invested in interest bearing assets accordingly. Net interest income
depends on the volume of average interest earning assets and average interest
bearing liabilities, and the interest rates earned and paid on interest earning
assets and interest bearing liabilities.
Net interest income for the three months ended March 31, 1999 and
1998 was approximately $1,122,439 and $1,019,327, respectively, and the yield on
net average interest earning assets was 6.25% and 6.63%, respectively.
Net interest income for the years ended December 31, 1998, 1997 and
1996, was approximately $4,494,998, $3,856,816, and $3,064,600, respectively.
The yield on net average earning assets was 6.47%, 6.63%, and 6.73%,
respectively. Total interest expense for the years ended December 31, 1998, 1997
and 1996 was approximately $1,842,175, $1,461,121, and $1,203,576, respectively.
The average cost of interest bearing liabilities for each period was 4.26%,
4.06%, and 3.83%, respectively.
56
<PAGE> 63
COMPARATIVE AVERAGE BALANCES, INTEREST, AND AVERAGE YIELDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------
1999 1998
---- ----
Interest Interest
Average Income Yield Average Income Yield
Balance Expense Rate Balance Expense Rate
---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable, net $ 54,484 $ 1,331 9.77% $ 48,886 $ 1,232 10.08%
Investment securities, taxable 9,286 149 6.42% 7,727 136 7.04%
Investment securities non taxable 825 10 4.84% 825 10 4.85%
Due from banks - time 1,318 15 4.55% 993 15 6.04%
Federal funds sold 6,214 70 4.50% 3,918 53 5.41%
--------- -------- ---- --------- -------- -----
Total interest earning assets 72,127 1,575 8.65% 62,349 1,446 9.28%
Non-interest earning assets:
Cash and due from banks 5,432 5,221
Other assets 2,735 2,323
--------- ---------
Total non-interest earning assets 8,167 7,544
--------- ---------
Total assets $ 80,294 $ 69,893
========= =========
Interest bearing liabilities:
Deposits:
Interest bearing demand
and NOW deposits $ 3,165 15 1.95% 2,302 12 2.09%
Savings deposits 4,928 34 2.76% 3,727 25 2.68%
Money market deposits 7,397 38 2.05% 6,557 33 2.01%
Time deposits 29,746 358 4.81% 25,951 337 5.19%
U.S. Treasury demand note 245 3 4.90% 312 5 6.41%
--------- -------- ---- --------- -------- -----
Total interest bearing liabilities 45,481 448 3.94% 38,849 412 4.24%
--------- -------- --------- --------
Non-interest bearing liabilities:
Non-interest bearing deposits 26,790 24,954
Other liabilities 403 365
--------- ---------
Total non-interest bearing liabilities 27,193 25,319
--------- ---------
Total liabilities 72,674 64,168
Stockholders' equity 7,620 5,725
--------- ---------
Total liabilities and stockholders' equity $ 80,294 $ 69,893
========= =========
Net interest income $ 1,127 $ 1,034
========= =========
Net yield on average earning assets 6.25% 6.63%
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1998 1997
---- ----
Interest Interest
Average Income Yield Average Income Yield
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable, net $ 50,520 $ 5,234 10.36% $ 43,005 $ 4,414 10.26%
Investment securities, taxable 7,526 540 7.18% 8,687 584 6.72%
Investment securities non taxable 825 38 4.61% 825 39 4.73%
Due from banks - time 1,155 69 5.97% 840 49 5.83%
Federal funds sold 9,472 525 5.54% 4,832 281 5.81%
--------- -------- ----- --------- -------- -----
Total interest earning assets 69,498 6,406 9.12% 58,189 5,367 9.14%
Non-interest earning assets:
Cash and due from banks 5,160 5,768
Other assets 2,883 2,034
--------- ---------
Total non-interest earning assets 8,043 7,802
--------- ---------
Total assets 77,541 65,991
========= =========
Interest bearing liabilities:
Deposits:
Interest bearing demand
and NOW deposits 2,757 59 2.14% 2,655 52 1.96%
Savings deposits 4,016 110 2.74% 3,652 93 2.55%
Money market deposits 7,254 150 2.07% 6,574 135 2.05%
Time deposits 28,837 1,505 5.22% 22,747 1,163 5.11%
U.S. Treasury demand note 361 18 4.99% 383 18 4.70%
--------- -------- ----- --------- -------- -----
Total interest bearing liabilities 43,225 1,842 4.26% 36,011 1,461 4.06%
--------- -------- --------- --------
Non-interest bearing liabilities:
Non-interest bearing deposits 27,404 24,524
Other liabilities 464 401
--------- ---------
Total non-interest bearing liabilities 27,868 24,925
--------- ---------
Total liabilities 71,093 60,936
Stockholders' equity 6,448 5,055
--------- ---------
Total liabilities and stockholders' equity $ 77,541 $ 65,991
========= =========
Net interest income $ 4,564 $ 3,906
========= =========
Net yield on average earning assets 6.57% 6.71%
</TABLE>
57
<PAGE> 64
The effect on interest income, interest expense, and net interest
income for the periods indicated, of changes in average balance and rate, is
shown below. The effect of a change in average balance has been determined by
applying the average rate at the year-end for the earlier period to the change
in average balance at the year-end for the later period. Changes resulting from
average balance/rate variances are included in changes resulting from volume.
RATE/VOLUME ANALYSIS OF NET INCOME
The following table sets forth the extent to which changes in volume
and rates of earning assets and interest-bearing liabilities affected change in
interest income or interest expense in the indicated time periods. For each
major balance sheet category, information is provided relating (1) changes in
volume (changes in average balance multiplied by the prior year's average
interest rate), (2) changes in rate (changes in average interest rate multiplied
by the prior year's average balance), and (3) the total change in interest
income/expense. Changes attributable jointly to volume and rate have been
allocated proportionately.
<TABLE>
<CAPTION>
Three Month Ended Year Ended Year ended
March 31, 1999 December 31, 1998 December 31, 1997
Compared to 1998 Compared to 1997 Compared to 1996
Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- -------------------------- --------------------------
Average Average Total Average Average Total Average Average Total
Volume Rate Change Volume Rate Change Volume Rate Change
---- ------ ------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans receivable, net 141 (38) 103 193 10 203 175 336 511
Investment securities, taxable 27 (12) 15 (20) 10 (10) (21) 1 (20)
Investment securities, non-taxable -- (2) (2) -- -- -- -- -- --
Federal funds sold 31 (9) 22 68 (3) 65 (27) 8 (19)
Due from banks - time 5 (4) 1 5 -- 5 -- -- --
----- ---- ----- ----- ----- ----- ----- ---- ------
Total interest income 204 (65) 139 246 17 263 127 345 472
Interest paid on:
Interest bearing demand and
NOW deposits 4 (1) 3 1 1 2 2 -- 2
Savings deposits 8 -- 8 2 2 4 2 .42 2.42
Money market deposits 4 -- 4 5 -- 5 6 (1) 5
Time deposits 49 (24) 25 78 6 84 43 10 53
U. S. Treasury demand note (1) -- (1) 1 -- 1 -- .33 .33
Total interest expense 64 (25) (39) 87 9 96 53 10 63
Change in interest income 140 40 100 159 8 167 74 335 409
</TABLE>
PROVISION FOR LOAN LOSSES
Navigation recorded a provision for loan losses of $10,000 during the
three month period ended March 31, 1999, as compared to $45,000 for the three
month period ended March 31, 1998. For the year ended December 31, 1998,
Navigation recorded a provision for loan losses of $80,000 as compared to
$170,000 for the year ended December 31, 1997. Navigation recorded a provision
for loan losses in the amount of $90,000 for the year ended December 31, 1996.
The total allowance for loan losses was $698,894 or 1.29% of total
outstanding loans at December 31, 1998 as compared to $626,163 or 1.27% at
December 31, 1996.
Navigation's policy is to record a provision for loan losses
consistent with current levels of net charge-offs, loan growth, aggregate credit
quality trends (including an assessment of existing levels of classified
criticized assets) and current economic conditions.
Navigation's allowance for loan losses represents an amount which, in
the judgment of management of Navigation and Navigation's Board of Directors,
will be adequate to absorb losses on existing loans that may become
uncollectible. The adequacy of the allowance for loan losses is evaluated
monthly based on a regular review of Navigation's loan portfolio, non accruing
loans, past due loans, and other loans that management of Navigation and the
Board believes to require special attention.
58
<PAGE> 65
NON-INTEREST INCOME
Navigation's non-interest income includes service charges and other
fees on deposit accounts, and other miscellaneous fee income. For the three
month periods ended March 31, 1999 and 1998, non-interest income was
approximately $201,782 and $205,701, respectively.
Non-interest income totaled approximately $1,438,325 and $767,412 and
$612,713 for the years ended December 31, 1998, 1997 and 1996, respectively. Of
the $670,913 increase in non-interest income from 1997 to 1998, approximately
98% of the increase was attributed to the sale of real estate owned by
Navigation.
The following table compares the various categories of non-interest
income for the periods indicated.
NON-INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31 Years ended December 31
------------------------------------- -------------------------------
1999 1998 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Service Charge and other fees $ 197 $ 192 $ 751 $ 734
Miscellaneous income 5 14 30 34
Sale of real estate -- -- 657 -
------------ ------------ ----------- ----------
Total non-interest income $ 202 $ 206 $ 1,438 $ 768
============ ============ =========== ==========
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense for the three months ended March 31, 1999 and
1998 totaled $933,185 and $782,753, respectively.
Non-interest expense for the years ended December 31, 1998, 1997 and
1996 totaled approximately $3,396,234, $2,866,188, and $2,567,338, respectively.
The increase in non-interest expenses of $530,046 from 1997 and 1998 was
primarily due to the establishment of Navigation's branch bank facility at
Woodridge.
The increase in non-interest expense from 1996 to 1997 of $298,850
was due primarily to the establishment of Navigation's Kirby Branch.
The following table summarizes the various categories of non-interest
expense for periods indicated.
NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended March 31 Years ended December 31
-------------------------------- -------------------------------
1999 1998 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 504,320 $ 459,900 $ 1,887,086 $ 1,676,070
Occupancy expense 168,979 117,804 583,052 453,708
Marketing and advertising 5,403 2,055 10,999 14,829
Data processing fees 59,748 57,193 236,215 199,648
Telephone 8,180 6,841 30,444 24,551
Insurance 7,303 11,362 27,079 24,266
Professional fees 7,974 9,375 40,235 37,572
Printing, stationery and supplies 19,734 14,732 78,811 63,378
Director fees and expenses 12,350 20,350 58,775 70,595
Security and courier service 39,066 23,663 125,314 83,871
Franchise taxes 30,408 13,350 102,687 46,009
</TABLE>
59
<PAGE> 66
NON-INTEREST EXPENSE (CONT'D.)
<TABLE>
<CAPTION>
Three Months Ended March 31 Years ended December 31
------------------------------------- ---------------------------------
1999 1998 1998 1997
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Year 2000 expense $ 6,230 $ -- $ 2,358 $ --
Postage 10,735 11,120 37,160 34,443
Other expenses 52,755 35,008 176,019 137,248
------------- ------------- -------------- --------------
Total non-interest expense $ 933,185 $ 782,753 $ 3,396,234 $ 2,866,188
============= ============= ============== ==============
</TABLE>
INCOME TAXES
For the three month periods ended March 31, 1999 and 1998,
Navigation's provision for income taxes was approximately $131,000 and $141,000,
respectively. For the years ended December 31, 1998, 1997 and 1996, Navigation's
provision for income taxes was approximately $841,497, $586,270 and $336,000,
respectively. The increases from 1997 to 1998 and from 1996 to 1997 were due to
increased earnings before taxes.
ASSET/LIABILITY MANAGEMENT
Navigation seeks to maximize net interest income through growth in
net earning assets and by protecting Navigation's net interest margin and
ensuring adequate liquidity or growth in deposit flows. Navigation accomplishes
this by structuring the balance sheet so that repricing opportunities exist for
both assets and liabilities during approximately the same time intervals in the
future. Management of Navigation and the Board recognize that a perfectly
matched interest rate sensitive balance sheet is not possible and that
imbalances in repricing opportunities at any point in time constitutes
Navigation's interest sensitivity position.
Management of Navigation attempts to manage these imbalances to
provide for a consistently growing positive net interest rate margin under all
interest rate environments. To this end, management of Navigation and
Navigation's Asset and Liability Committee monitors the structure of
Navigation's rate-sensitive assets and liabilities.
A traditional indicator of the interest rate sensitivity position of
a financial institution's balance sheet is the difference between rate sensitive
assets and rate sensitive liabilities at given forward-looking time horizons,
which is referred to as Navigation's "GAP" measurement. GAP analysis is a
traditional indicator used for monitoring interest rate risk and Navigation
employs GAP analysis as one of the means of monitoring Navigation's exposure to
the risk of interest rate sensitivity. Management of Navigation believes that
Navigation was not subject to any excessive interest rate risk at March 31,
1999.
INTEREST RATE SENSITIVITY ANALYSIS AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
TERM TO REPRICING
-----------------
<TABLE>
<CAPTION>
90 Days 91 Days More Than
Or Less to 1 Year 1 Year Total
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 6,722 $ -- $ -- $ 6,722
Investment securities, taxable 1,593 159 8,414 10,166
Loans, net 23,176 5,993 26,328 55,497
Time CD's - other banks 99 -- 1,288 1,387
------------- ---------- ----------- -----------
Total interest-earning
assets $ 31,590 $ 6,152 $ 36,030 $ 73,772
============= ========== =========== ===========
</TABLE>
60
<PAGE> 67
<TABLE>
<CAPTION>
90 Days 91 Days More Than
Or Less to 1 Year 1 Year Total
------- --------- --------- -------
<S> <C> <C> <C> <C>
Interest-bearing liabilities:
NOW & savings accounts $ 5,583 $ -- $ -- $ 5,583
Money market deposit 10,005 -- -- 10,005
Time & IRA time deposit 11,625 14,881 30,611 57,117
------- -------- ------- -------
Total interest-bearing
liabilities $27,213 $ 14,881 $30,611 $72,705
======= ======== ======= =======
Interest sensitivity gap period 4,377 (8,729) 5,420 1,068
======= ======== ======= =======
Cumulative gap 4,377 (4,352) 1,068
======= ======== =======
Cumulative ratio of interest-earning
assets to interest-bearing
liabilities 116.08% 41.34% 117.71%
Cumulative gap to total assets 5.42% 5.39% 1.32%
</TABLE>
INTEREST RATE SENSITIVITY ANALYSIS AS OF DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
TERM TO REPRICING
-----------------
<TABLE>
<CAPTION>
90 Days 91 Days More Than
Or Less to 1 Year 1 Year Total
------- --------- ---------- -------
<S> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 7,035 $ -- $ -- $ 7,035
Time CD's - other banks -- 396 892 1,288
Investment securities, taxable 1,498 5,389 3,481 10,368
Loans, net 25,149 9,203 19,864 54,216
------- -------- ------- -------
Total interest-earning
assets $33,682 $ 14,988 $24,237 $72,907
======= ======== ======= =======
Interest-bearing liabilities:
NOW & savings accounts $ 4,575 $ -- $ -- $ 4,575
Money market deposit 10,827 -- -- 10,827
Time & IRA time deposit 11,820 15,081 17,992 44,893
------- -------- ------- -------
Total interest-bearing
liabilities $27,222 $ 15,081 $17,992 $60,295
======= ======== ======= =======
Interest sensitivity gap period 6,460 (93) 6,245 12,612
======= ======== ======= =======
Cumulative gap 6,460 6,397 12,612
======== ======= =======
Cumulative ratio of interest-earning
assets to interest-bearing
liabilities 123.73% 99.38% 134.71%
Cumulative gap to total assets 8.04% 7.96% 15.70%
</TABLE>
61
<PAGE> 68
FINANCIAL CONDITION:
LENDING ACTIVITIES
The primary source of income for Navigation is the interest earned on
loans. Loans are the single largest component of Navigation's earning assets, as
well as the highest yielding component. Due to the importance of loans to
Navigation's profitability, most other assets and liabilities are managed to
accommodate the funding of loans.
At March 31, 1999, Navigation's total assets were approximately
$80,808,833 as compared to $74,533,161 at March 31, 1998. At December 31, 1998,
total assets were approximately $80,322,103 as compared to $68,745,373 at
December 31, 1997. At March 31, 1999, total loans were approximately $56,222,000
or 69.57% of total assets as compared to total loans of $50,486,000 or 67.73% of
total assets at March 31, 1998.
At December 31, 1998, total loans were $54,975,895 or 68% of total
assets as compared to total loans of $49,357,633 or 72% of total assets at March
31, 1998. Management of Navigation believes that the increase in loans from 1997
to 1998 is primarily attributable to a continued, strong local and regional
economy, and a relatively stable interest rate environment, as well as the
favorable reputation Navigation enjoys among small businesses and professionals
in Navigation's primary market area.
The following table summarized the composition of Navigation's loan
portfolio by type of loan on the dates indicated.
LOAN PORTFOLIO COMPOSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, 1999 December 31,
------------------------- -----------------------------------------------
1998 1997
------------------ --------------------
Amount % Amount % Amount %
----------- ------- ----------- -- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Type of loan:
Commercial and financial $ 24,334 44 $ 20,756 38 $ 18,357 37
Real estate 24,148 43 23,352 42 25,454 51
Installment loans to
individuals 7,740 13 10,868 20 6,144 12
----------- ------- ----------- -- -----
Total loans $ 56,222 100 $ 54,976 100 $ 49,955 100
=========== ======= =========== === =========== =====
Less:
Unearned loan fees $ (724) (760) (597)
Allowance for loan losses (698) (699) (626)
----------- ----------- ----------
Net loans $ 54,800 $ 53,517 $ 48,732
=========== =========== ==========
</TABLE>
62
<PAGE> 69
The following table sets forth the maturities of loans outstanding at
December 31, 1998, and an analysis of sensitivities of all loans due to changes
in interest rates.
LOAN MATURITY SCHEDULE
(DOLLARS IN THOUSANDS)
AT DECEMBER 31, 1998
----------------------
<TABLE>
<CAPTION>
Due After 1
Due in 1 Year But Due After
Year or Less Before 5 Years 5 Years Total
------------ -------------- ------------- ---------
<S> <C> <C> <C> <C>
Residential Real
Estate Loans $ 959 $ 1,655 $ -- $ 2,614
All Other Loans 24,941 25,800 1,621 52,362
------- ------- ------- -------
$25,900 $27,455 $ 1,621 $54,976
======= ======= ======= =======
</TABLE>
The following table sets forth as of March 31, 1999 and December 31, 1998,
the dollar amounts of loans due after one year which had predetermined interest
rates and which had floating or adjustable rates.
DOLLAR AMOUNT OF LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Type of interest rate:
Predetermined $ 26,763 $ 22,617
Floating or adjustable 6,563 6,459
----------- ------------
Total $ 33,326 $ 29,076
=========== ============
</TABLE>
ASSET QUALITY
Management of Navigation has sought to maintain a high quality of
assets and adhere to sound underwriting and lending practices. An analysis of
the loan portfolio reveals a significant concentration of real estate related
credits. At March 31, 1999, approximately 43% of total loans were secured by
real estate. As of December 31, 1998, approximately 42% of total loans were
secured by real estate. At December 31, 1997 and 1996, respectively,
approximately 51% and 54% of total loans were secured by real estate.
As of March 31, 1999, Navigation was the owner of one parcel of
"Other Real Estate Owned". The parcel is a 57,000 square foot tract of land
located in Harris County, Texas, and is carried on the books of Navigation at a
value of $50,594. Navigation has placed a sales listing for the real estate.
As a result of management of Navigation's ongoing review of the loan
portfolio, loans are classified as non-accrual when it is not reasonable to
expect collection of interest under the original terms of the loan due to a
deterioration in the financial condition of the borrower. At March 31, 1999,
Navigation had non-accrual loans totaling $290,545.
Loan concentrations are defined as amounts of monies loaned to a
number of borrowers engaged in similar activities which would cause them to be
similarly impacted by economic and other conditions. Navigation constantly
evaluates these concentrations for the purpose of assessing needed adjustments
to Navigation's lending activities. Items that influence such adjustments are
changes in the economy, loan to deposit ratios, and industry trends. Navigation
has a target mix of 40% commercial loans, 49% real estate loans and 11% consumer
loans for the purpose of further reducing risk resulting from concentration of
credit.
The Board and management of Navigation place great emphasis on strong
loan underwriting procedures. Navigation has a loan review process the objective
of which is to quickly identify and evaluate corrective action that is
63
<PAGE> 70
needed for marginal or trouble loans. In addition to the review of such loans by
management of Navigation, all due and delinquent loans are also reviewed on a
monthly basis by the Board.
CLASSIFICATION OF ASSETS
Interest on loans is accrued and credited to income based upon the
principal balance outstanding. Unless mitigating circumstances exist, it is the
policy of Navigation to discontinue the accrual of interest income and classify
a loan as non-accrual when principal or interest is 90 days past due, or
financial condition of the borrowers has deteriorated, or when the principal and
interest is not likely to be paid in accordance with the terms of the
obligation. Loans are not returned to accrual status until principal and
interest payments are brought current. Interest that is accrued and unpaid at
the time a loan is placed on a non-accrual status is charged against income.
Subsequent payments received are applied to the outstanding principal until the
loan is removed from non-accrual status.
Real estate acquired by Navigation as a result of foreclosure is
classified as "other real estate owned". The properties are recorded on the date
acquired at the lower or fair market value less estimated selling costs, or
Navigation's recorded investment in the related loan. If the fair market value,
after deducting the estimated selling closing costs of the acquired property, is
less than the recorded investment in the related loan, the estimated loss is
charged to the allowance for loan losses at that time. The resulting carrying
value established at the date of the foreclosure becomes the new cost basis for
subsequent accounting. After foreclosure, if the fair market value less
estimated selling costs of the property, becomes less than its cost, the
provision is charged to the provision for loan losses. Any costs related to the
developmental improvement of the property are capitalized, whereas those costs
relating to holding the property for sale are charged as expense.
At December 31, 1998, 1997 and 1996, Navigation had $50,594 in other
real estate owned. As of March 31, 1999, Navigation had $50,594 in other real
estate owned.
ALLOWANCE FOR LOAN LOSSES
In originating loans Navigation recognizes that credit losses will be
experienced and the risk of loss will depend largely on the type of loan made,
the credit worthiness of the borrower over the term of loan, and case of a
collateralized loan the quality of the collateral of the loan as well as changes
in general economic conditions. It is management of Navigation's policy to
maintain an adequate allowance for loan losses based on, among other things,
Navigation's historical loss experience, evaluation of economic conditions, and
regular reviews of delinquencies and of the quality of the loan portfolio.
The allowance for loan losses has been established through charges to
earnings in the form of a provision for loan losses. Increases and decreases in
the allowance due to changes in the measurement of impaired loans are included
in the provision for loan losses. Loans continue to be classified as incurred
unless they have been brought fully current and the collection of scheduled
interest and principal is considered probable. When a loan or a portion of a
loan is determined to be uncollectible, the portion that is deemed to be
uncollectible is charged against the allowance.
It is management of Navigation's policy to discontinue the accrual of
interest income and classify a loan as non-accrual when principal or interest is
90 days past due, the financial condition of the borrower deteriorates, or when
principal or interest is not likely to be paid in accordance with the terms of
the obligation. The exception to this policy is when the loan is a secured loan
and management of Navigation has investigated the circumstances of the loan and
has reasonable cause to believe that the loan will be brought current from a
specific source of repayment.
Management of Navigation continues to actively monitor Navigation's
asset quality and to charge off loans against the allowance for loan losses when
appropriate, or to provide specific loan losses when necessary. Although
management of Navigation believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if the economic conditions differ from the economic conditions
used as assumptions in making the initial determinations.
Navigation's allowance for loan losses was $698,350 as of March 31,
1999 (1.3% of total loans), and $698,895 at December 31, 1998 (1.3% of total
loans). Navigation experienced charged-offs totaling $10,595 during the three
month period ended March 31, 1999. Navigation had no recoveries of previously
charged off loans during the three month period ended March 31, 1999. Navigation
experienced charge-offs totaling $7,269, $9,712 and $6,251 during the fiscal
years
64
<PAGE> 71
ended December 31, 1998, 1997 and 1996, respectively. During those same years,
Navigation had recoveries of previously charged-off loans totaling $-0-, $153,
and $59,792, respectively.
At March 31, 1999, Navigation's allowance for loan losses was
comprised of a general loan portfolio allocation totaling $199,141 and a
specific allocation totaling $499,209. At March 31, 1999, the Board determined
that the allowance for loan losses was adequate.
The following table sets forth an analysis of Navigation's allowance
for possible loan losses for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
March 31, 1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Total net loans outstanding at end of period 54,800 53,517 48,731
Average net loans outstanding during the year 54,485 50,520 43,005
Allowance for loan losses, beginning of period 699 626 466
Loans charged-off during the period: 4 7 10
Commercial and financial 0 0 0
Real estate mortgage 0 0 0
Real estate construction 0 0 0
Installment loans to individuals 0 0 0
------------- ------------- -------------
Total loans charged-off 4 7 10
Recoveries of loans previously charged-off:
Commercial and financial 0 0 0
Real estate mortgage 0 0 0
Real estate construction 0 0 0
Installment loans to individuals 0 0 0
------------- ------------- -------------
Total recoveries 0 0 0
Net loans charged-off (recovered) during the period:
Provisions for loan losses 10 80 170
Allowance for loan losses, end of period 698 699 626
Non-performing loans, end of period 1,373 967 1,115
Net charge-offs (recoveries) during year to average net loans .0007 .01 .02
Allowance as a percentage of non-performing loans 50.91 72.29 56.14
</TABLE>
INVESTMENT ACTIVITIES
Management and the Board of Directors of Navigation have made it a
policy to classify virtually all investment securities purchased as "held to
maturity". Securities in this category are recorded at amortized cost. The cost
of investment securities sold is determined by the specific identification
method. If a security has a decline in fair market value that is other than
temporary then the security will be written down to its fair market value by
recording a loss in the statement of operations. As of March 31, 1999,
management of Navigation currently had $9,672,658 of securities classified as
"held to maturity", and no "trading" securities.
At March 31, 1999, Navigation had an unrealized gain on securities
available for sale (net of taxes) of approximately $ -0-. As of March 31, 1999,
Navigation's investment portfolio totaled approximately $10,165,000 compared to
$10,368,000 at December 31, 1998. At March 31, 1999, 60% ($6,098,000) of
Navigation's investment portfolio consisted of mortgage backed securities.
65
<PAGE> 72
The following table summarizes the carrying value of Navigation's
investment portfolio as of the dates indicated.
INVESTMENT SECURITIES PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
March 31, 1999 1998 1997
-------------- -------- -------
<S> <C> <C> <C>
Investment securities, available for sale:
U. S. Treasury securities $ -- $ -- $ --
U. S. government agencies -- -- --
Other securities 241 216 198
Mortgage backed securities 251 293 533
------- ------- ------
Total investment securities, available for sale $ 492 $ 509 $ 731
======= ======= ======
Investment securities, held to maturity:
U. S. Treasury securities $ 1,000 $ 1,998 $1,993
U. S. government agencies 2,000 7,037 2,659
Mortgage backed securities 5,847 -- 2,816
Municipal securities 826 825 825
------- ------- ------
Total investment securities, held to maturity $ 9,673 $ 9,860 $8,293
======= ======= ======
Total $10,165 $10,369 $9,024
======= ======= ======
</TABLE>
The following table sets forth the weighted average yield of the
investment portfolio of Navigation as of March 31, 1999. The calculation of the
weighted average interest yields is based on yield, weighted by the respective
costs of the securities.
INVESTMENT CATEGORY AS OF MARCH 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Average
Amount Yield
------ -------
<S> <C> <C>
Investment Category:
Securities available for sale:
0 - 1 year $ 251 6.43%
After 15 years 241 6.00%
------------- ----
Total securities available for sale $ 492 6.21%
------------- ----
Securities held to maturity:
0 - 1 year $ 1,000 6.38%
1 - 5 years 4,924 5.62%
5 - 10 years 3,112 6.86%
Due after 15 years 637 8.00%
------------- ----
Total securities held to maturity $ 9,673 6.25%
------------- ----
Total investment securities $ 10,165 6.24%
============= ====
</TABLE>
DEPOSIT ACTIVITIES
Deposits are the primary source of funds for Navigation's lending and
other investment activities. In addition to deposits, Navigation derives funds
from interest payments, loan principal payments, and funds provided from
operations. Schedule loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are influenced by competitive and general
market interest rates, overall economic growth, and activity in Navigation's
market area. Navigation also has federal funds purchase lines available from two
correspondent banks for short term borrowing needs. Navigation has never
experienced the need to use the federal funds purchase borrowing lines of
credit.
66
<PAGE> 73
Navigation attracts deposits from within its principal market area
through the offering of a full line of deposit products. Deposit products
include checking accounts, money market accounts, savings accounts, regular time
deposits, and individual retirement savings plans.
Navigation does not generally accept deposits from areas outside its
local geographic market and has not aggressively pursued large denomination or
high interest bearing certificates of deposit outside of Navigation's local
market area. As of March 31, 1999, Navigation had $16,572,000 in time deposits
with balances of $100,000 or more. As of December 31, 1998, 1997, and 1996,
Navigation had time deposits in excess of $100,000 totaling $15,546,426,
$11,789,679 and $8,239,050, respectively.
Navigation establishes maturity terms, service fees, and withdrawal
penalties on a periodic basis. The determination of interest rates and terms is
dependent upon funds acquisition and liquidity needs, interest rates paid by
competitors, growth goals, loan demand and federal regulations.
The following table sets forth the average balances and average
weighted rates for Navigation's categories of deposits for the periods
indicated.
DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Month Ended Year Ended Year ended
March 31, 1999 December 31, 1998 December 31 1997
-------------- ----------------- ----------------
Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- -------------------------- --------------------------
Average Average Total Average Average Total Average Average Total
Volume Rate Change Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand
deposits $ 26,790 0% 37.20% 27,404 0% 39.00% 24,524 0% 40.77%
Interest bearing demand and
NOW deposits 3,165 1.95% 4.39% 2,757 2.14% 3.92% 2,655 1.96% 4.41%
Savings account deposits 4,928 2.76% 6.85% 4,016 2.74% 5.71% 3,652 2.55% 6.07%
Money market accounts
deposits 7,397 2.06% 10.26% 7,254 2.07% 10.32% 6,574 2.05% 10.93%
%Time deposits 29,746 4.81% 41.30% 28,837 5.22% 41.05% 22,747 5.11% 37.82%
--------- ------ ------
Total $ 72,026 100.00% 70,268 100.00% 60,152 100.00%
======== ====== ======
Weighted Average Rate
(All Deposits) 2.48% 2.62% 2.43%
</TABLE>
The following table indicates the amount of Navigation's certificates
of deposit of $100,000 or more by time remaining until maturity at March 31,
1999.
<TABLE>
<CAPTION>
Certificates of
$100,000 or greater
(Dollars in Thousands)
<S> <C>
Maturity Period as of March 31, 1999:
Under three months $ 6,766
Over three months through twelve months 8,634
Over twelve months 1,172
-----------
Totals $ 16,572
-----------
</TABLE>
67
<PAGE> 74
RETURN ON EQUITY AND ASSETS
The following table sets forth Navigation's performance ratios for the periods
indicated
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1997 1996
--------- ----------- --------------
<S> <C> <C> <C>
Return on average assets 2.09% 1.52% 1.15%
Return on average equity 25.11% 19.81% 15.17%
Dividend payout ratio N/A N/A N/A
Year-end equity to year-end total assets 8.98% 8.12% 7.14%
Average interest-earning assets to average
interest bearing liabilities 1.61% 1.62% 1.59%
Non-performing loans and other real estate
owned to average total assets .24% .29% .10%
Non-performing loans to total loans 2.04% 2.52% .46%
Allowance for loan losses to total loans 1.29% 1.27% 1.21%
Net charge-offs (Recoveries) to average net loans .01% .02% .02%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Navigation's principal sources of funds are deposits, principal and
interest payments on loans, interest on investments, and sales of investment
securities. During 1998, Navigation experienced deposit growth of $9,552,291, or
15.8%. Management of Navigation is unaware of any trends in the sources or uses
of funds by Navigation that are expected to have a material adverse impact on
Navigation's liquidity position. Navigation believes it maintains significant
sources of secondary liquidity in case events occur that would cause a material
change in the liquidity position of Navigation. Navigation also meets the
definition of a "well capitalized" financial institution.
At March 31, 1999, shareholder equity was approximately $7,459,987 or
9.2% of total assets compared to $7,208,887, or 8.9% of total assets as of
December 31, 1998. At March 31, 1999 and December 31, 1998, respectively,
Navigation's Tier I risk base capital ratios were approximately 12.03% and
11.86%. All of Navigation's capital ratios exceed the minimum regulatory
guidelines for a "well capitalized" bank.
IMPACT OF INFLATION AND CHANGING PRICES
Navigation's financial statements have been prepared in accordance
with generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of Navigation is
reflected in increased operating cost. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. Consequently, changes in interest rates have a more
significant impact on the performance of a financial institution than do the
effect of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services in general.
FEDERAL AND STATE TAXATION
Although a bank's income tax liability is determined under the
provision of the Code, which is applicable to taxpayers or corporations,
sections 581 and 597 of the Code apply specifically to financial institutions.
The two primary areas in which the treatment of financial
institutions differs from the treatment of other corporations under the Code are
bond gains and losses, and bad debt deductions. Bond gains and losses generated
from the sale or exchange of portfolio securities are generally treated for
financial institutions as ordinary gains and losses as opposed to capital gains
and losses for other corporations. The Code considers bond portfolios held by
Navigation to be inventory in a trade or business rather than to be capital
assets. Banks are allowed a statutory method for calculating a tax deductible
reserve for bad debt deductions.
68
<PAGE> 75
CERTAIN INFORMATION ABOUT SOUTHTRUST
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
SouthTrust is required by the Exchange Act to file certain
information about itself with the Commission. Some of the information filed by
SouthTrust with the Commission is "incorporated by reference" into this Proxy
Statement/Prospectus. By allowing SouthTrust to incorporate by reference
information about SouthTrust into this Proxy Statement/Prospectus means that
important information about SouthTrust, its business, operations and financial
condition can be disclosed to you by referring you to other documents filed by
SouthTrust with the Commission before and after the date of this Proxy
Statement/Prospectus. The information incorporated by reference is deemed to be
part of this Proxy Statement/Prospectus, except for any information superseded
by information in this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by reference the following documents filed by
SouthTrust with the Commission:
1. SouthTrust's Annual Report on Form 10-K for the year
ended December 31, 1998 (including therein SouthTrust's Proxy
Statement for its Annual Meeting of Stockholders held on April 21,
1999) (Commission File No. 0-3613);
2. SouthTrust's Quarterly Report on Form 10-Q, dated March
31, 1999 (Commission File No. 0-3613); and
3. SouthTrust's Registration Statement on Form 8-A, dated
January 22, 1999 (Commission File No. 0-3613).
All documents filed with the Commission by SouthTrust pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to final adjournment of the Special
Meeting, are also deemed to be incorporated by reference into this Proxy
Statement/Prospectus from the date of the filing of such documents.
The audited financial statements of SouthTrust incorporated herein by
reference should only be read in conjunction with the discussion of consummated
and pending acquisitions set forth under the caption "SUMMARY - Parties to the
Merger - SouthTrust.
If you receive a copy of this Proxy Statement/Prospectus, you may
request from SouthTrust, without charge, copies of all of the documents which
are incorporated by reference into this Proxy Statement/Prospectus. Copies of
exhibits to the documents incorporated by reference will not be provided to you
unless the exhibits themselves are specifically incorporated into the documents
incorporated by reference. You should make your requests in writing or orally
to:
Mr. Alton E. Yother
Secretary, Treasurer and Controller
SouthTrust Corporation
420 North 20th Street, 34th Floor
Birmingham, Alabama 35203
Telephone Number: (205) 254-5000.
WHERE YOU CAN FIND MORE INFORMATION ABOUT SOUTHTRUST
You can also obtain more information about SouthTrust from other
sources as listed in "Available Information" at p. 1 and at SouthTrust's page on
the world wide webb at http://www.southtrust.com.
LEGAL MATTERS
Bradley Arant Rose & White LLP Birmingham, Alabama, counsel for
SouthTrust will give an opinion as to certain legal matters in connection with
the SouthTrust Common Stock being offered by this Proxy Statement/Prospectus. As
of March 31, 1999, the partners and associates of the firm of Bradley Arant Rose
& White LLP beneficially owned approximately {3,052,500} shares of SouthTrust
Common Stock.
69
<PAGE> 76
The law firm of Hausler, Farra & Kennedy, Houston, Texas, will give
an opinion as to certain legal matters relating to the Merger for Navigation.
EXPERTS
The consolidated financial statements of SouthTrust Corporation and
subsidiaries incorporated by reference in this Proxy Statement/Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said reports.
Killingsworth & Company, independent public accountants, have audited
the financial statements of Navigation included in this Proxy
Statement/Prospectus for the periods indicated in their report. We included
these financial statements in this Proxy Statement/Prospectus in reliance upon
the authority of Killingsworth & Company as experts in giving said reports.
OTHER SHAREHOLDER PROPOSALS
The Board of Directors of Navigation does not know of any matter to
be brought before the Special Meeting other than as described in the Notice of
Special Meeting accompanying this Proxy Statement/Prospectus. If any other
matter comes before the Special Meeting, it is the intention of the persons
named in the accompanying proxy to vote the proxy in accordance with their best
judgment with respect to such other matters.
70
<PAGE> 77
NAVIGATION BANK
Independent Auditor's Report
and
Audited Financial Statements
December 31, 1998, 1997 and 1996
Independent Accountant's Compilation Report
and
Condensed Financial Statements
March 31, 1999 and 1998
F-i
<PAGE> 78
INDEX TO THE FINANCIAL STATEMENTS OF NAVIGATION BANK
AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountant...........................................................................F-1
Balance Sheets as of December 31, 1998 and 1997.............................................................................F-2
Statements of Income For the Years Ended December 31, 1998, 1997 and 1996...................................................F-3
Statements of Changes in Stockholders' Equity For the Years Ended December 31, 1998, 1997 and 1996..........................F-4
Statements of Cash Flows For the Years Ended December 31, 1998, 1997 and 1996...............................................F-5
Notes to Audited Financial Statements.......................................................................................F-6
UNAUDITED FINANCIAL STATEMENTS
Disclaimer of Independent Certified Public Accountant......................................................................F-15
Balance Sheets as at March 31, 1999 and 1998................................................................................F-16
Condensed Statements of Income For the Periods Ended March 31, 1999 and 1998...............................................F-17
Condensed Statements of Changes in Stockholders' Equity For the Periods Ended March 31, 1999 and 1998......................F-18
Condensed Statements of Cash Flows For the Periods Ended March 31, 1999 and 1998...........................................F-19
Notes to Unaudited Condensed Financial Statements..........................................................................F-20
</TABLE>
F-ii
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
Board of Directors
Navigation Bank:
We have audited the accompanying balance sheets of Navigation Bank as
of December 31, 1998 and 1997, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Navigation Bank as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ KILLINGSWORTH & COMPANY P.C.
Houston, Texas
March 22, 1999
F-1
<PAGE> 80
NAVIGATION BANK
Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 5,364 $ 5,980
Federal funds sold 7,035 1,925
---------- ----------
Total cash and cash equivalents 12,399 7,905
---------- ----------
Interest-bearing deposits 1,288 993
Investment securities:
Available for sale 508 731
Held to maturity 9,860 8,293
Loans, net 53,517 48,732
Bank premises and equipment, net 2,154 1,415
Accrued interest receivable and other assets 545 625
Other real estate owned 51 51
---------- ----------
$ 80,322 $ 68,745
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 27,000 $ 25,720
Savings and other time 45,157 36,605
---------- ----------
Total deposits 72,157 62,325
---------- ----------
Accrued interest and other liabilities 955 836
---------- ----------
Total liabilities 73,112 63,161
---------- ----------
Commitments and contingent liabilities -- --
Stockholders' equity:
Common stock of $32.50 par value.
Authorized, issued and outstanding
43,345 shares 1,409 1,409
Surplus 4,500 2,900
Retained earnings 1,301 1,285
Unrealized holding gains (losses) - (10)
---------- -----------
Total stockholders' equity 7,210 5,584
---------- ----------
$ 80,322 $ 68,745
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-2
<PAGE> 81
NAVIGATION BANK
Statements of Income
(Dollars in Thousands except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (note 1) $ 5,234 $ 4,414 $ 3,237
Investment securities 509 574 625
Interest on deposits 69 49 42
Interest on Federal funds sold 525 281 365
------- ------- -------
Total interest income 6,337 5,318 4,269
------- ------- -------
Interest expense on deposits 1,842 1,461 1,204
Net interest income 4,495 3,857 3,065
------- ------- -------
Provision for loan losses 80 170 90
Net interest income after
provisions for loan losses 4,415 3,687 2,975
------- ------- -------
Other income:
Service fees on deposit accounts 751 734 598
Commissions, fees and other 687 34 15
------- ------- -------
Total other income 1,438 768 613
------- ------- -------
Other expenses:
Salaries and benefits 1,771 1,572 1,334
Occupancy expenses 583 454 425
Other operating expenses 1,042 841 809
------- ------- -------
Total other expenses 3,396 2,867 2,568
------- ------- -------
Income before Federal
income tax 2,457 1,588 1,020
------- ------- -------
Federal income tax 841 586 336
------- ------- -------
Net income 1,616 1,002 684
======= ======= =======
Net income per common share $ 37.28 $ 23.12 $ 15.78
Weighted average shares outstanding 43,345 43,345 43,345
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-3
<PAGE> 82
NAVIGATION BANK
Statements of Changes in Stockholders' Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unrealized
Holding
Par Retained Gains
Shares Value Surplus Earnings (Losses) Total
------ ----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 43,345 $1,409 $1,800 $ 699 $(10) $ 3,898
====== ====== ====== ======= ==== =======
Net income -- -- -- 684 -- 684
Transfer from retained
earnings to surplus -- -- 800 (800) -- --
Unrealized change in investment
securities available for sale -- -- -- -- 1 1
------ ------ ------ ------- ---- -------
Balance,
December 31, 1996 43,345 $1,409 $2,600 $ 583 $ (9) $ 4,583
====== ====== ====== ======= ==== =======
Net income -- -- -- 1,002 -- 1,002
Transfer from retained
earnings to surplus -- -- 300 (300) -- --
Unrealized change in investment
securities available for sale -- -- -- -- (1) (1)
------ ------ ------ ------- ---- -------
Balance,
December 31, 1997 43,345 $1,409 $2,900 $ 1,285 $(10) $ 5,584
====== ====== ====== ======= ==== =======
Net income -- -- -- 1,616 -- 1,616
Transfer from retained
earnings to surplus -- -- 1,600 (1,600) -- --
Unrealized change in investment
securities available for sale -- -- -- -- 10 10
------ ------ ------ ------- ---- -------
Balance,
December 31, 1998 43,345 $1,409 $4,500 $ 1,301 $ -- $ 7,210
====== ====== ====== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-4
<PAGE> 83
NAVIGATION BANK
Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
---------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,616 $ 1,002 $ 684
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, amortization
and accretion 183 142 96
Loan recoveries -- -- 60
Gain on other asset disposition -- 3 --
Decrease (increase) in accrued
interest and other assets 81 (168) (126)
(Decrease) increase in accrued
interest and other liabilities 114 84 90
Provision for loan losses 80 170 90
-------- -------- --------
Net cash provided by
operating activities 2,074 1,233 894
-------- -------- --------
Cash flows from investing activities:
Proceeds from maturities of
held-to-maturity securities 2,924 2,307 1,040
Purchase of held-to-maturity securities (4,499) (1,048) (2,982)
Proceeds from maturities of
available for sale securities 247 81 1,228
Purchase of securities available for sale (17) -- --
Net decrease (increase) in loans (4,865) (10,795) (10,967)
Purchase of equipment (908) (123) (1,054)
Proceeds from sale of other real estate -- -- 160
Increase (decrease) in interest-bearing deposits (295) (293) --
-------- -------- --------
Net cash provided by (used
in) investing activities (7,413) (9,871) (12,575)
-------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 9,833 4,195 17,405
Net cash provided by (used
in) financing activities 9,833 4,195 17,405
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents 4,494 (4,445) 5,724
-------- -------- --------
Cash and cash equivalents at beginning of year 7,905 12,350 6,626
-------- -------- --------
Cash and cash equivalents at end of period $ 12,399 $ 7,905 $ 12,350
======== ======== ========
Supplemental information:
Taxes paid $ 833 $ 685 $ 268
Interest paid $ 1,834 $ 1,453 $ 1,175
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-5
<PAGE> 84
NAVIGATION BANK
Notes to Financial Statements
(Dollars in Thousands)
(1) Summary of Significant Accounting Policies
Navigation is a state chartered institution offering full banking
services through four branches in the Houston, Texas area.
Navigation's primary sources of revenue are derived from investing in
U. S. Treasury and Agency securities and granting loans to customers
in the Houston Area. While Navigation has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent on the economics in that area.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
The accounting and reporting policies of Navigation conform to
generally accepted accounting principles. A description of the more
significant accounting policies follows:
(a) Statement of Cash Flows - The real estate owned was
acquired in a non-cash transaction. For purposes of
reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and
Federal funds sold.
(b) Investment Securities - Management determines the
appropriate classification of securities at the time
of purchase. If management has the intent and
Navigation has the ability at the time of purchase to
hold securities until maturity or on a long-term
basis, they are classified as held to maturity and
carried at amortized historical cost. Securities to
be held for indefinite periods of time and not
intended to be held to maturity or on a long-term
basis are classified as available for sale and
carried at fair value. Securities held for indefinite
periods of time include securities that management
intends to use as part of its asset and liabilities
management strategy and that may be sold in response
to changes in interest rate, resultant prepayment
risk and other factors, related to interest rate and
resultant prepayment risk changes.
Realized gains and losses on dispositions are based
on the net proceeds and the adjusted book value of
the securities sold, using the specific
identification method. Unrealized gains and losses on
investment securities available for sale are based on
the difference between book value and fair value of
each security. These gains and losses, net of any
income tax effect, are reported as a separate
component of stockholders' equity. Realized gains and
losses flow through Navigation's yearly statements of
income.
(c) Loans and allowance for loan losses - Loans are
stated at the amount of unpaid principal, reduced by
unearned discount and an allowance for loan losses.
Unearned discount on installment loans is recognized
as income over the terms of the loans by the interest
method. Interest on other loans is calculated by
using the simple interest method on daily balances of
the principal amount outstanding. The allowance for
loan losses is established through a provision for
loan losses charged to expenses. Loans are charged
against the allowance for loan losses when management
believes that the collectibility of the principal is
unlikely. The allowance is an amount that management
believes will be adequate to absorb possible losses
on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans
and prior loan loss experience. The evaluations take
into consideration such factors as changes in the
nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans,
and current economic conditions that may affect the
borrowers' ability to pay. Accrual of interest is
discontinued on a loan 90 days past due or sooner if
management believes, after considering economic and
business conditions and collection efforts, that the
borrowers' financial condition is such that
collection of interest is doubtful.
KILLINGSWORTH & COMPANY, P.C.
F-6
<PAGE> 85
NAVIGATION BANK
Notes to Financial Statements, Continued
(Dollars in Thousands)
(1) Summary of Significant Accounting Policies, continued
(d) Navigation Premises and Equipment - Office equipment and
buildings are stated at cost less accumulated depreciation
computed principally on the straight-line method over the
estimated useful lives of the assets.
(e) Real Estate Owned - Real estate owned represents real estate
acquired through foreclosure or deed in lieu of foreclosure
and is stated at the lower of the outstanding loan balance at
the time of foreclosure or appraised value. Gains on the sale
of real estate owned are generally deferred and recognized on
the installment method as the sale proceeds are received.
Losses and write-downs resulting from periodic reevaluations
of the property are charged to other expenses.
(f) Income Taxes - Income taxes are provided for the tax effects
of transactions reported in the financial statement,
regardless of the period in which such items are recognized
for tax purposes. Deferred income tax assets and liabilities
are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred
tax assets and liabilities.
(g) Deferred Loan Fees - Loan commitment and origination fees and
the direct costs of loan origination are deferred when
material. The net deferred loan fees are amortized into income
over the life of the related loans.
(h) Off Balance Sheet Financial Instruments - In the ordinary
course of business, Navigation has entered into off balance
sheet financial instruments consisting of commitments to
extend credit and commercial letters of credit. Such financial
instruments are recorded in the financial statements when they
are funded.
(i) Earnings per Common Share - Earnings per common share is
calculated by dividing net income by the weighted average
number of common shares outstanding during the period.
(2) Investment Securities
The amortized cost and fair values of investment securities available
for sale at December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Other securities $ 216 $ -- $ -- $ 216
Mortgage-backed securities 293 -- (1) 292
---------- --------- --------- ---------
$ 509 $ -- $ (1) $ 508
========== ========= ========= =========
</TABLE>
KILLINGSWORTH & COMPANY, P.C.
F-7
<PAGE> 86
NAVIGATION BANK
Notes to Financial Statements, Continued
(Dollars in Thousands)
(2) Investment Securities, continued
The amortized cost and fair values of investment securities held to maturity at
December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $1,998 $ 8 $ -- $2,006
U.S. government
agencies 7,037 27 -- 7,064
State and political 825 22 -- 847
------ --- ------ ------
$9,860 $57 $ -- $9,917
====== === ====== ======
</TABLE>
The amortized cost and fair values of investment securities available for sale
at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Other securities $ 198 $-- $ -- $ 198
Mortgage-backed securities 547 -- (14) 533
------ --- ------ ------
$ 745 $-- $ (14) $ 731
====== === ====== ======
</TABLE>
The amortized cost and fair values of investment securities held to maturity at
December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $1,993 $ 9 $ (8) $1,994
U.S. Government
Agencies 2,659 -- (22) 2,637
State and political 825 14 -- 839
Mortgage-backed securities 2,816 60 (15) 2,861
------ --- ------ ------
$8,293 $83 $ (45) $8,331
====== === ====== ======
</TABLE>
There were no gross realized gains or losses on sales of available for sale
securities for the period ended December 31, 1998, December 31, 1997 and
December 31, 1996.
KILLINGSWORTH & COMPANY, P.C.
F-8
<PAGE> 87
(2) Investment Securities, continued
The following table shows the maturity distribution of the investment
portfolio at December 31, 1998:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
---------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- ------
<S> <C> <C> <C> <C>
Due in one year or less $ 293 $292 $2,499 $2,510
Due after one year
through five years -- -- 4,435 4,453
Due after five years
through 15 years -- -- 2,212 2,210
Due after 15 years 216 216 714 744
------ ---- ------ ------
$ 509 $508 $9,860 $9,917
====== ==== ====== ======
</TABLE>
The following table shows the maturity distribution of the investment
portfolio at December 31, 1997:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
--------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- ------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ -- $ --
Due after one year
through five years -- -- 4,162 4,146
Due after five years
through 15 years -- -- 1,312 1,323
Due after 15 years 198 198 -- --
---- ---- ------ ------
198 198 5,477 5,469
Mortgage backed securities 547 533 2,816 2,861
---- ---- ------ ------
$745 $731 $8,293 $8,330
==== ==== ====== ======
</TABLE>
Investment securities with a carrying amount of $2,000 and $1,200 at
December 31, 1998 and 1997, respectively, were pledged to secure
public deposits and for other purposes required or permitted by law.
F-9
<PAGE> 88
(3) Loans
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Commercial $ 20,756 $ 18,357
Real estate 23,352 25,454
Installment 10,868 6,144
-------------- ---------------
54,976 49,955
Less unearned discount (760) (597)
-------------- ---------------
54,216 49,358
Less allowance for loan losses (699) (626)
--------------- ----------------
$ 53,517 $ 48,732
============== ===============
</TABLE>
Impaired loans were $157 and $146 at December 31, 1998 and December
31, 1997, respectively. The reduction in interest associated with
these impaired loans was insignificant and no valuation allowance for
loan losses related to impaired loans has been established. There
were no commitments to lend additional funds to these borrowers at
December 31, 1998 and 1997.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1998 1997 1996
------------- ---------------- ---------------
<S> <C> <C> <C>
Balance,
beginning
of year $ 626 $ 466 $ 322
Provision charged
to operations 80 170 90
Loans charged off (7) (10) (6)
Recoveries -- -- 60
---------- ---------- ----------
Balance,
end of year $ 699 $ 626 $ 466
========== ========== ==========
</TABLE>
KILLINGSWORTH & COMPANY, P.C.
F-10
<PAGE> 89
NAVIGATION BANK
Notes to Financial Statements, Continued
(Dollars in Thousands)
(4) Navigation Premises and Equipment
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Land $ 897 $ 1,002
Building 1,050 258
Equipment 542 328
Leasehold improvements 164 153
Automobile -- 26
------------- -------------
2,653 1,767
Accumulated Depreciation (499) (352)
------------- -------------
$ 2,154 $ 1,415
============= =============
</TABLE>
Depreciation and amortization expense amounted to $159,141, $95,727,
and $86,763 in the years ended December 31, 1998, 1997 and 1996,
respectively.
(5) Deposits
Included in interest-bearing time deposits are certificates of
deposit in amounts of $100,000 or more. These certificates and their
remaining maturities at December 31, 1998 and 1997, respectively, are
as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
---------- ------------
<S> <C> <C>
Three months or less $ 6,105 $ 4,659
Three months to one year 8,638 1,927
One to three years 603 4,193
Three to five years 200 1,011
---------- ------------
$ 15,546 $ 11,790
========== ============
</TABLE>
(6) Income Tax
The total income taxes (benefits) in the statements of income are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current $ 841 $ 586 $ 366
Deferred (benefit) -- -- 30
---------- ---------- ----------
Federal income tax expense $ 841 $ 586 $ 336
========== ========== ==========
</TABLE>
KILLINGSWORTH & COMPANY, P.C.
F-11
<PAGE> 90
(6) Income Tax, continued
Income tax expense at the Federal statutory rate of 34% is
reconciled to Navigation's actual provision as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Tax at statutory rate $ 835 $ 540 $ 347
Effect on tax exempt income (13) (13) (13)
Other non-deductible expense 19 59 2
---------- ---------- ----------
$ 841 $ 586 $ 336
========== ========== ==========
</TABLE>
Deferred tax assets and deferred tax liabilities at December 31,
1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Total deferred tax liabilities -
depreciation differences $ 4 $ 17 $ 17
========== ========== ==========
</TABLE>
(7) Commitments and Contingent Liabilities
Navigation leases three of its facilities under operating leases
which expire in 2004, 2005 and 2008, respectively. Total rent expense
for 1998, 1997 and 1996 was $195, $188 and $188, respectively.
Navigation contracts for data-processing services under a contract
which expires in 2000. The total contract expense for 1998, 1997 and
1996 was $233, $197 and $187, respectively. The following is a
schedule of the future minimum lease payments under operating leases
for facilities and information services.
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1999 $ 363
2000 247
2001 210
2002 210
2003 210
Thereafter 691
-----------
$ 1,931
===========
</TABLE>
Navigation has four lines of credit available for short-term
liquidity needs. The lines totaled $10,600 and have varying terms and
charge interest at the overnight federal funds rate. Certain
securities are pledged as required. No amounts have been drawn
against these lines of credit. Also, Navigation has a line of credit
with the Federal Home Loan Bank in the amount of $1,200
collateralized by a blanket lien on qualified loans. The rate of
interest charged depends on the term of the loan requested. No
amounts have been drawn against this line of credit.
In the normal course of business Navigation makes various commitments
and incurs certain contingent liabilities that are not presented in
the accompanying financial statements. The commitments and contingent
liabilities include various guarantees, commitments to extend credit,
and standby letters of credit. At December 31, 1998 and 1997, such
commitments and standby letters of credit aggregated approximately
$5,717 and $8,674, respectively. Navigation does not anticipate any
material losses as a result of the commitments and contingent
liabilities.
KILLINGSWORTH & COMPANY, P.C.
F-12
<PAGE> 91
NAVIGATION BANK
Notes to Financial Statements, Continued
(Dollars in Thousands)
(8) Related Party Transactions
Navigation has entered into transactions with certain officers,
directors, significant shareholders and their affiliates. Such
transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related
parties at December 31, 1998 and 1997, was $641 and $1,151,
respectively. During 1998 and 1997, new loans to such related parties
amounted to approximately $864 and $5 and net repayments amounted to
approximately $226 and $422, respectively.
(9) Retained Earnings
Banking regulations limit the amount of dividends that may be paid
without prior approval of Navigation's regulatory agency.
(10) Financial Instruments with Off-Balance-Sheet Risk
Navigation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance
sheets.
Navigation's exposure to credit loss in the event of nonperformance
by the other party to the financial instruments for commitments to
extend credit and standby letters of credit is represented by the
contractual notational amount of those instruments (see note 7).
Navigation uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. Navigation evaluates each customer's credit worthiness
on a case-by-case basis. The amount and type of collateral obtained,
if deemed necessary by Navigation upon extension of credit, varies
and is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by
Navigation to guarantee the performance of a customer to a third
party. Standby letters of credit generally have fixed expiration
dates or other termination clauses and may require payment of a fee.
The credit risk involved in issuing stand-by letters of credit is
essentially the same as that involved in extending loan facilities to
customers. Navigation's policy for obtaining collateral and the
nature of such collateral is essentially the same as that involved in
making commitments to extend credit.
(11) Concentrations of Credit
Most of Navigation's loans, commitments, and commercial and standby
letters of credit have been granted to customers in Navigation's
market area. Most such customers are depositors of Navigation. The
concentrations of credit by type of loan are set forth in Note 3.
Commercial and standby letters of credit were granted primarily to
commercial borrowers. In addition, Navigation had the following
individual concentrations:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Bank America balance $ 354 $ 609
=========== ===========
</TABLE>
The Bank America balance represents a due from account in excess of
Federal deposit insurance units.
KILLINGSWORTH & COMPANY, P.C.
F-13
<PAGE> 92
NAVIGATION BANK
Notes to Financial Statements, Continued
(Dollars in Thousands)
(12) Regulatory Matters
Navigation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory-and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on Navigation's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Navigation must meet specific
capital guidelines that involve quantitative measures of Navigation's
assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Navigation's
capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require Navigation to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined) and
of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1998, that Navigation meets
all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the
Federal Deposit Insurance Corporation categorized Navigation as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized Navigation must
maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed
the institution's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
--------- ----- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(To Risk Weighted Assets) $ 7,908 13.01% >4.863 >8.00% >6,078 >10.00%
- - -
Tier I Capital
(To Risk Weighted Assets) $ 7,209 11.86% >2.431 >4.00% >3,647 >6.00%
- - - -
Tier I Capital
(To Average Assets) $ 7,209 8.75% >3,296 >4.00% >4,119 >5.00%
- - - -
As of December 31, 1997:
Total Capital
(To Risk Weighted Assets) $ 6,220 11.46% >4,342 >8.00% >5,427 >10.00%
- - - -
Tier I Capital
(To Risk Weighted Assets) $ 5,594 10.31% >2,170 >4.00% >3,256 >6.00%
- - - -
Tier I Capital
(To Average Assets) $ 5,594 8.10% >2,763 >4.00% >2,713 >5.00%
- - - -
</TABLE>
KILLINGSWORTH & COMPANY, P.C.
F-14
<PAGE> 93
DISCLAIMER OF INDEPENDENT AUDITORS
The Board of Directors
Navigation Bank:
The accompanying balance sheets of Navigation as of March 31, 1999
and 1998, and the related statements of income, changes in stockholders' equity
and cash flows for the three months then ended were not audited by us and,
accordingly, we do not express an opinion on them.
/s/ KILLINGSWORTH & COMPANY P.C.
Houston, Texas
March 22, 1999
F-15
<PAGE> 94
NAVIGATION BANK
Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and due from banks $ 5,007 $ 5,884
Federal funds sold 6,722 7,480
----------- -----------
Total cash and cash equivalents 11,729 13,364
----------- -----------
Interest-bearing deposits 1,387 993
Investment securities:
Available for sale 492 615
Held to maturity 9,673 8,107
Loans, net 54,800 49,171
Bank premises and equipment 2,135 1,744
Accrued interest receivable and other assets 542 488
Other real estate owned 51 51
----------- -----------
$ 80,809 $ 74,533
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 27,118 $ 25,514
Savings and other time 45,587 42,389
----------- -----------
Total deposits 72,705 67,903
----------- -----------
Accrued interest and other liabilities 644 780
----------- -----------
Total liabilities 73,349 68,683
----------- -----------
Commitments and contingent liabilities -- --
Stockholders' equity:
Common stock of $32.50 par value.
Authorized, issued and outstanding
43,345 shares 1,409 1,409
Surplus 5,300 3,700
Retained earnings 751 741
Unrealized holding gains (losses) -- --
----------- -----------
Total stockholders' equity $ 7,460 $ 5,850
----------- -----------
$ 80,809 $ 74,533
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-16
<PAGE> 95
NAVIGATION BANK
Statements of Income
(Dollars in Thousands except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
(Unaudited)
---------------------------
1999 1998
----------- ---------
<S> <C> <C>
Interest income:
Interest and fees on loans (note 1) $ 1,331 $ 1,232
Investment securities 149 131
Interest on deposits 20 15
Interest on Federal funds sold 70 53
----------- ---------
Total interest income 1,570 1,431
----------- ---------
Interest expense on deposits 448 412
----------- ---------
Net interest income 1,122 1,019
----------- ---------
Provision for loan losses 10 45
----------- ---------
Net interest income after
provisions for loan losses 1,112 974
----------- ---------
Other income:
Service fees on deposit accounts 197 192
Commissions, fees and other 5 14
----------- ---------
Total other income 202 206
----------- ---------
Other expenses:
Salaries and benefits 466 425
Occupancy expenses 169 118
Other operating expenses 298 240
----------- ---------
Total other expenses 933 783
----------- ---------
Income before Federal
income tax 381 397
----------- ---------
Federal income tax 131 141
----------- ---------
Net income $ 250 $ 256
- ----------- =========== =========
Net income per common share $ 5.77 $ 5.91
Weighted average shares outstanding 43,345 43,345
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-17
<PAGE> 96
NAVIGATION BANK
Statements of Changes in Stockholders' Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unrealized
Holding
Par Retained Gains
Shares Value Surplus Earnings (Losses) Total
------ ------ ------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 43,345 $1,409 $2,900 $ 1,285 $(10) $5,584
Net income -- -- -- 256 -- 256
Transfer from retained
earnings to surplus -- -- 800 (800) -- --
Unrealized change in investment
securities available for sale -- -- -- -- 10 10
------ ------ ------ ------- ---- ------
Balance, March 31, 1998 43,345 $1,409 $3,700 $ 741 $ -- $5,850
====== ====== ====== ======= ==== ======
(unaudited)
Balance,
December 31, 1998 43,345 $1,409 4,500 $ 1,301 -- $7,210
Net income (unaudited) -- -- -- 250 -- 250
Transfer from retained
earnings to surplus -- -- 800 (800) -- --
Unrealized change in investment
securities available for sale -- -- -- -- -- --
------ ------ ------ ------- ---- ------
Balance, March 31, 1999
(unaudited) 43,345 $1,409 $5,300 $ 751 $ -- $7,460
====== ====== ====== ======= ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-18
<PAGE> 97
NAVIGATION BANK
Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Unaudited)
-----------------------------
1999 1998
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 250 $ 256
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, amortization
and accretion 62 32
Loan recoveries -- --
Gain on other asset disposition -- --
Decrease (increase) in accrued
interest and other assets 3 (223)
(Decrease) increase in accrued
interest and other liabilities (296) (56)
Provision for loan losses -- 45
-------- --------
Net cash provided by
operating activities 19 54
-------- --------
Cash flows from investing activities:
Proceeds from maturities of
held-to-maturity securities 1,187 --
Purchase of held-to-maturity securities (999) (1,000)
Proceeds from maturities of
available for sale securities 41 131
Purchase of securities available for sale (26) 1,185
Net decrease (increase) in loans (1,283) (484)
Purchase of equipment (43) --
Proceeds from sale of other real estate -- --
Increase (decrease) in interest-bearing deposits (99) --
-------- --------
Net cash provided by (used
in) investing activities (1,222) (168)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 532 5,572
Net cash provided by (used
in) financing activities 532 5,572
-------- --------
Net increase (decrease) in
cash and cash equivalents (671) 5,458
Cash and cash equivalents at beginning of year 12,400 7,906
-------- --------
Cash and cash equivalents at end of period $ 11,729 $ 13,364
======== ========
Supplemental information:
Taxes paid $ 21 $ --
Interest paid $ 454 $ 400
</TABLE>
The accompanying notes are an integral part of these financial statements.
KILLINGSWORTH & COMPANY, P.C.
F-19
<PAGE> 98
NAVIGATION BANK
Notes to Financial Statements
(Dollars in Thousands)
(1) Summary of Significant Accounting Policies
(a) Interim Financial Information - Financial information as of
March 31, 1999 and 1998 and for the three months ended
March 31, 1999 and 1998, included herein, is unaudited.
Such information includes all adjustments (consisting only
of normal recurring adjustments), which are, in the opinion
of management, necessary for a fair statement of the
financial information in the interim periods. The results
of operations for the three months ended March 31, 1999 and
1998 are not necessarily indicative of the results for the
full fiscal year.
(2) Investment Securities
The amortized cost and fair value of investment securities available
for sale at March 31, 1999 (unaudited) are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
Other securities $ 241 $ -- $ -- $ 241
Mortgage-backed
securities 251 -- -- 251
----------- ---------- --------- --------
$ 492 $ -- $ -- $ 492
=========== ========== ======== ========
</TABLE>
The amortized cost and fair values of investment securities held to
maturity at March 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury
securities $ 1,000 $ 2 $ -- $ 1,002
U. S. government
agencies 2,000 -- 5 1,995
State and political 825 20 -- 845
Mortgage-backed securities 5,848 13 15 5,846
----------- ---------- --------- -----------
$ 9,673 $ 35 $ 20 $ 9,688
=========== ========== ========= ===========
</TABLE>
The amortized cost and fair value of investment securities available
for sale at March 31, 1998 (unaudited) are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- --------- --------
<S> <C> <C> <C> <C>
Other securities $ 201 $ -- $ -- $ 201
Mortgage-backed
securities 414 -- -- 414
----------- ---------- --------- --------
$ 615 $ -- $ -- $ 615
=========== ========== ========= ========
</TABLE>
KILLINGSWORTH & COMPANY, P.C.
F-20
<PAGE> 99
(2) Investment Securities - Continued
The amortized cost and fair values of investment securities held to
maturity at March 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury
securities $ 1,994 $ 11 $ -- $ 2,005
U. S. government
agencies 2,489 -- 8 2,481
State and political 825 17 -- 842
Mortgage-backed securities 2,799 54 -- 2,843
----------- ---------- ---------- -----------
$ 8,107 $ 82 $ 8 $ 8,171
=========== ========== ========== ===========
</TABLE>
There were no gross realized gains or losses on sales of available
for sale securities for the period ended March 31, 1999 and March 31,
1998.
Investment securities with a carrying amount of $1,200 and $2,000 for
the periods ended March 31, 1998 and 1999 respective were pledged to
secure public deposits and for other purposes required or permitted
by law.
(3) Loans
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
------------ --------------
<S> <C> <C>
Commercial $ 24,334 $ 19,136
Real estate 24,148 24,840
Installment 7,740 6,510
------------ ------------
56,222 50,486
Less unearned discount (724) (648)
------------ ------------
55,498 49,838
Less allowance for loan losses (698) (667)
----------- ------------
$ 54,800 $ 49,171
============ ============
</TABLE>
Impaired loans were $140 and $291 for periods ended March 31, 1998
and 1999 respectively. The reduction in interest associated with
these impaired loans was insignificant and no valuation allowance for
loan losses related to impaired loans has been established. There
were no commitments to lend additional funds to these borrowers at
March 31, 1999.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
March 31
(Unaudited)
---------------------------
1999 1998
--------- ----------
<S> <C> <C>
Balance,
beginning
of year $ 699 $ 626
Provision charged
to operations 10 45
Loans charged off (11) (4)
Recoveries -- --
--------- ----------
Balance,
end of year $ 698 $ 667
========= ==========
</TABLE>
KILLINGSWORTH & COMPANY, P.C.
F-21
<PAGE> 100
NAVIGATION BANK
Notes to Financial Statements, Continued
(Dollars in Thousands)
(4) Navigation Premises and Equipment
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
-------------- --------------
<S> <C> <C>
Land $ 897 $ 1,002
Building 1,050 618
Equipment 554 328
Leasehold improvements 164 153
Automobile 30 26
------------- --------------
2,695 2,127
Accumulated depreciation 560 383
------------- --------------
$ 2,135 $ 1,744
============= ==============
</TABLE>
Depreciation and amortization expense for the period ended March 31,
1999 and 1998 was $59 and $56 respectively.
(5) Deposits
Included in interest-bearing time deposits are certificates of
deposit in amounts of $100,000 or more. These certificates and their
remaining maturities at March 31, 1999 and 1998, respectively, are as
follows:
<TABLE>
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
--------------- ---------------
<S> <C> <C>
Three months or less $ 6,766 $ 4,135
Three months to one year 8,634 6,361
One to three years 972 1,892
Three to five years 200 145
--------------- --------------
$ 16,572 $ 12,533
=============== ==============
</TABLE>
(6) Regulatory Matters
As of March 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized Navigation as well
capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification
that management of Navigation believes have changed Navigation's
category.
KILLINGSWORTH & COMPANY, P.C.
F-22
<PAGE> 101
(6) Regulatory Matters - Continued
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999:
Total Capital
(To Risk Weighted Assets) $ 8,157 13.15% >4,962 >8.00% >6,203 >10.00%
- - - -
Tier I Capital
(To Risk Weighted Assets) $ 7,459 12.03% >2,480 >4.00% >3,720 > 6.00%
- - - -
Tier I Capital
(To Average Assets) $ 7,459 9.29% >3,212 >4.00% >4,015 > 5.00%
- - - -
As of March 31, 1998:
Total Capital
(To Risk Weighted Assets) $ 6,516 11.57% >4,505 >8.00% >5,373 >10.00%
- - - -
Tier I Capital
(To Risk Weighted Assets) $ 5,849 10.39% >2,252 >4.00% >3,378 > 6.00%
- - - -
Tier I Capital
(To Average Assets) $ 5,849 8.37% >2,795 >4.00% >3,494 > 5.00%
- - - -
</TABLE>
KILLINGSWORTH & COMPANY, P.C.
F-23
<PAGE> 102
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
SOUTHTRUST BANK, NATIONAL ASSOCIATION
AND
NAVIGATION BANK
JOINED IN BY
SOUTHTRUST CORPORATION
AND
SOUTHTRUST OF ALABAMA, INC.
A-1
<PAGE> 103
ARTICLE 1
THE MERGER
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1.1 Constituent Corporations; Consummation of Merger; Closing Date.............A-10
Section 1.2 Effect of Merger...........................................................A-11
Section 1.3 Further Assurances.........................................................A-11
Section 1.4 Directors and Officers.....................................................A-11
ARTICLE 2
CONVERSION OF CONSTITUENTS' CAPITAL SHARES
Section 2.1 Manner of Conversion of Bank Shares........................................A-11
Section 2.2 Fractional Shares..........................................................A-12
Section 2.3 Effectuating Conversion....................................................A-12
Section 2.4 Laws of Escheat............................................................A-13
</TABLE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BANK
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.1 Corporate Organization.....................................................A-14
Section 3.2 Capitalization.............................................................A-14
Section 3.3 Financial Statements; Filings..............................................A-14
Section 3.4 Loan Portfolio; Reserves...................................................A-15
Section 3.5 Certain Loans and Related Matters..........................................A-16
Section 3.6 Authority; No Violation....................................................A-16
Section 3.7 Consents and Approvals.....................................................A-16
Section 3.8 Broker's Fees..............................................................A-17
Section 3.9 Absence of Certain Changes or Events.......................................A-17
Section 3.10 Legal Proceedings; Etc.....................................................A-17
Section 3.11 Taxes and Tax Returns......................................................A-17
Section 3.12 Employee Benefit Plans.....................................................A-18
Section 3.13 Title and Related Matters..................................................A-18
Section 3.14 Real Estate................................................................A-19
Section 3.15 Environmental Matters......................................................A-19
Section 3.16 Commitments and Contracts..................................................A-20
Section 3.17 Regulatory, Accounting and Tax Matters.....................................A-21
Section 3.18 Registration Obligations...................................................A-21
Section 3.19 State Takeover Laws........................................................A-21
Section 3.20 Insurance..................................................................A-21
Section 3.21 Labor......................................................................A-21
Section 3.22 Compliance with Laws.......................................................A-21
Section 3.23 Transactions with Management...............................................A-22
Section 3.24 Derivative Contracts.......................................................A-22
Section 3.25 Deposits...................................................................A-22
Section 3.26 Accounting Controls........................................................A-22
Section 3.27 Proxy Materials............................................................A-22
Section 3.28 Deposit Insurance..........................................................A-22
Section 3.29 Year 2000..................................................................A-22
Section 3.30 Untrue Statements and Omissions............................................A-23
</TABLE>
A-2
<PAGE> 104
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
SOUTHTRUST, ST-SUB AND ST-BANK
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.1 Organization and Related Matters of SouthTrust.............................A-23
Section 4.2 Organization and Related Matters of ST-Sub.................................A-23
Section 4.3 Organization and Related Matters of ST-Bank................................A-23
Section 4.4 Capitalization.............................................................A-24
Section 4.5 Authority; No Violation....................................................A-24
Section 4.6 Financial Statements.......................................................A-24
Section 4.7 Absence of Certain Changes or Events.......................................A-25
Section 4.8 Legal Proceedings, Etc.....................................................A-25
Section 4.9 Insurance..................................................................A-25
Section 4.10 Consents and Approvals.....................................................A-25
Section 4.11 Accounting, Tax, Regulatory Matters........................................A-25
Section 4.12 Proxy Materials............................................................A-25
Section 4.13 No Broker's or Finder's Fees...............................................A-26
Section 4.14 Untrue Statements and Omissions............................................A-26
Section 4.15 SEC Filings................................................................A-26
Section 4.16 Compliance with Laws.......................................................A-26
</TABLE>
ARTICLE 5
COVENANTS AND AGREEMENTS OF THE BANK
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.1 Conduct of the Business of Bank............................................A-27
Section 5.2 Information to be Provided by the Bank to SouthTrust.......................A-28
Section 5.3 Access to Properties; Personnel and Records................................A-29
Section 5.4 Approval of the Bank's Shareholders........................................A-29
Section 5.5 No Other Bids..............................................................A-29
Section 5.6 Affiliates.................................................................A-30
Section 5.7 Maintenance of Properties..................................................A-30
Section 5.8 Environmental Audits.......................................................A-30
Section 5.9 Title Insurance............................................................A-30
Section 5.10 Surveys....................................................................A-30
Section 5.11 Consents to Assign.........................................................A-31
Section 5.12 Exemption Under Anti-Takeover Statutes.....................................A-31
Section 5.13 Conforming Accounting and Reserve Policies.................................A-31
Section 5.14 Compliance Matters.........................................................A-31
</TABLE>
ARTICLE 6
<TABLE>
<CAPTION>
<S> <C> <C>
Section 6.1 Information to be Provided to the Bank.....................................A-31
Section 6.2 Registration Statement.....................................................A-31
Section 6.3 Reservation of Shares......................................................A-32
Section 6.4 Consideration..............................................................A-32
</TABLE>
A-3
<PAGE> 105
ARTICLE 7
ADDITIONAL COVENANTS AND AGREEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.1 Best Efforts; Cooperation..................................................A-32
Section 7.2 Regulatory Matters.........................................................A-32
Section 7.3 Employee Benefit Matters...................................................A-32
Section 7.4 Indemnification............................................................A-33
Section 7.5 Confidentiality of Information.............................................A-34
Section 7.6 Publicity..................................................................A-34
</TABLE>
ARTICLE 8
MUTUAL CONDITIONS TO CLOSING
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.1 Shareholder Approval.......................................................A-34
Section 8.2 Regulatory Approvals.......................................................A-34
Section 8.3 Legal Proceedings..........................................................A-35
Section 8.4 Registration Statement and Listing.........................................A-35
</TABLE>
ARTICLE 9
CONDITIONS TO THE OBLIGATIONS OF
SOUTHTRUST, ST-SUB AND ST-BANK
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.1 Representations and Warranties.............................................A-35
Section 9.2 Performance of Obligations.................................................A-35
Section 9.3 Certificate Representing Satisfaction of Conditions........................A-35
Section 9.4 Absence of Adverse Facts...................................................A-35
Section 9.5 Opinion of Counsel.........................................................A-35
Section 9.6 Consents Under Agreements..................................................A-35
Section 9.7 Consents Relating to Leased Real Property..................................A-35
Section 9.8 Material Condition.........................................................A-36
Section 9.9 Employment Agreement with William Woodby...................................A-36
Section 9.10 Outstanding Shares of the Bank.............................................A-36
Section 9.11 Dissenters.................................................................A-36
Section 9.12 Pooling....................................................................A-36
Section 9.13 Certification of Claims....................................................A-36
Section 9.14 Litigation.................................................................A-36
</TABLE>
ARTICLE 1
CONDITIONS TO OBLIGATIONS OF THE BANK
<TABLE>
<CAPTION>
<S> <C> <C>
Section 10.1 Representations and Warranties.............................................A-36
Section 10.2 Performance of Obligations.................................................A-37
Section 10.3 Certificate Representing Satisfaction of Conditions........................A-37
Section 10.4 Absence of Adverse Facts...................................................A-37
Section 10.5 Consents Under Agreements..................................................A-37
Section 10.6 Opinion of Counsel.........................................................A-37
Section 10.7 SouthTrust Shares..........................................................A-37
Section 10.8 Tax Opinion................................................................A-37
</TABLE>
A-4
<PAGE> 106
ARTICLE 11
TERMINATION, WAIVER AND AMENDMENT
<TABLE>
<CAPTION>
<S> <C> <C>
Section 11.1 Termination................................................................A-37
Section 11.2 Effect of Termination......................................................A-39
Section 11.3 Termination Fee............................................................A-39
Section 11.4 Amendments.................................................................A-39
Section 11.5 Waivers....................................................................A-39
Section 11.6 Non-Survival of Representations and Warranties.............................A-39
</TABLE>
ARTICLE 12
MISCELLANEOUS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 12.1 Entire Agreement...........................................................A-40
Section 12.2 Definitions................................................................A-40
Section 12.3 Notices....................................................................A-41
Section 12.4 Severability...............................................................A-41
Section 12.5 Costs and Expenses.........................................................A-42
Section 12.6 Captions...................................................................A-42
Section 12.7 Counterparts...............................................................A-42
Section 12.8 Governing Law..............................................................A-42
Section 12.9 Persons Bound; No Assignment...............................................A-42
Section 12.10 Exhibits and Schedules.....................................................A-42
Section 12.11 Waiver.....................................................................A-42
Section 12.12 Construction of Terms......................................................A-42
</TABLE>
A-5
<PAGE> 107
AGREEMENT AND PLAN OF MERGER
OF
SOUTHTRUST BANK, NATIONAL ASSOCIATION
AND
NAVIGATION BANK
JOINED IN BY
SOUTHTRUST CORPORATION
AND
SOUTHTRUST OF ALABAMA, INC.
------------------------
LIST OF SCHEDULES
------------------------
Disclosure Schedule 3.3(e): Financial Statements, Filings
Disclosure Schedule 3.4: Loan Portfolio; Reserves
Disclosure Schedule 3.5: Certain Loans and Related Matters
Disclosure Schedule 3.7: Consents and Approvals
Disclosure Schedule 3.9: Absence of Certain Changes or Events
Disclosure Schedule 3.10: Legal Proceedings, Etc.
Disclosure Schedule 3.11(a): Taxes and Tax Returns
Disclosure Schedule 3.11(b): Taxes and Tax Returns
Disclosure Schedule 3.11(c): Taxes and Tax Returns
Disclosure Schedule 3.12(a): Employee Benefit Plans
Disclosure Schedule 3.13(a): Title and Related Matters
Disclosure Schedule 3.13(b): Title and Related Matters
Disclosure Schedule 3.14(a): Real Estate
Disclosure Schedule 3.14(b): Real Estate
Disclosure Schedule 3.14(d): Real Estate
Disclosure Schedule 3.16(a): Commitments and Contracts
Disclosure Schedule 3.16(b): Commitments and Contracts
Disclosure Schedule 3.20: Insurance
Disclosure Schedule 3.22: Compliance with Laws
Disclosure Schedule 3.23: Transactions with Management
A-6
<PAGE> 108
<TABLE>
<CAPTION>
<S> <C>
Disclosure Schedule 3.24: Derivative Contracts
Disclosure Schedule 3.25: Deposits
Disclosure Schedule 3.29 Year 2000
Disclosure Schedule 4.5: Authority; No Violation
Disclosure Schedule 4.8: Legal Proceedings, Etc.
Disclosure Schedule 4.10: Consents and Approvals
Disclosure Schedule 4.16: Compliance with Laws
Disclosure Schedule 5.1(b)(iv): Conduct of the Business of the Bank: Capital Expenditures
Disclosure Schedule 5.1(b)(vi): Conduct of the Business of the Bank: Bonuses
</TABLE>
A-7
<PAGE> 109
AGREEMENT AND PLAN OF MERGER
OF
SOUTHTRUST BANK, NATIONAL ASSOCIATION
AND
NAVIGATION BANK
JOINED IN BY
SOUTHTRUST CORPORATION
AND
SOUTHTRUST OF ALABAMA, INC.
-----------------------
LIST OF EXHIBITS
-----------------------
Exhibit 5.6: Form of Affiliate Letter
Exhibit 9.5: Matters as to which Hausler, Farra &
Kennedy, Counsel to the Bank, will opine
Exhibit 9.9: Form of Employment Agreement with William Woodby
Exhibit 10.6: Matters as to which Bradley Arant Rose &
White LLP, Counsel to SouthTrust, ST-Sub,
and ST-Bank will opine
A-8
<PAGE> 110
AGREEMENT AND PLAN OF MERGER OF
SOUTHTRUST BANK, NATIONAL ASSOCIATION
AND
NAVIGATION BANK
JOINED IN BY
SOUTHTRUST CORPORATION
AND
SOUTHTRUST OF ALABAMA, INC.
This AGREEMENT AND PLAN OF MERGER, dated as of the 3rd day of
May, 1999 (this "Agreement"), by and between Navigation Bank, a Texas banking
corporation (the "Bank"), and SouthTrust Bank, National Association ("ST-Bank")
a wholly-owned subsidiary of SouthTrust of Alabama, Inc., an Alabama corporation
and wholly-owned subsidiary of SouthTrust (as defined herein) ("ST-Sub"), and
joined in by SouthTrust Corporation, a Delaware corporation ("SouthTrust") and
ST-Sub.
RECITALS:
WHEREAS, ST-Sub wishes to acquire the assets and business of
the Bank in exchange for shares of common stock of SouthTrust, in a transaction
that qualifies as a reorganization pursuant to Section 368(a)(1)(C) of the
Internal Revenue Code of 1986 (the "Code") (the "Merger");
WHEREAS, ST-Sub desires to effect such acquisition through its
wholly-owned subsidiary, ST- Bank, by causing the Bank to be merged with and
into ST-Bank;
WHEREAS, ST-Sub has directed, adopted and approved the
acquisition of the assets and business of the Bank through the wholly-owned
subsidiary of ST-Sub, ST-Bank;
WHEREAS, the respective Boards of Directors of ST-Bank and the
Bank deem it in the best interests of ST-Bank and the Bank, respectively, and of
their respective shareholders, that the Bank be merged with and into ST-Bank
pursuant to this Agreement (the "Merger");
WHEREAS, the Boards of Directors of ST-Bank and the Bank have
approved this Agreement and have directed that this Agreement be submitted to
their respective shareholders for approval and adoption in accordance with
applicable law;
WHEREAS, SouthTrust owns all the issued and outstanding
capital stock of ST-Sub and ST-Sub owns all the issued and outstanding capital
stock of ST-Bank;
WHEREAS, SouthTrust, the ultimate parent company of ST-Bank,
will deliver, or cause to be delivered, to the shareholders of the Bank the
consideration to be paid pursuant to the Merger in accordance with the terms of
this Agreement; and
WHEREAS, SouthTrust, on behalf of and as the sole shareholder
of ST-Sub, will cause ST-Sub to perform its obligations provided for hereunder
and otherwise take or cause to be taken the various other actions provided for
herein to facilitate the administration of the transactions provided for herein
in accordance with the terms and provisions hereof;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, representations, warranties and agreements herein contained,
the parties agree that the Bank will be merged with ST-Bank and that the terms
and conditions of the Merger, the mode of carrying the Merger into effect,
including the manner of converting the shares of common stock of the Bank into
shares of common stock of SouthTrust, shall be as hereinafter set forth.
A-9
<PAGE> 111
ARTICLE 1
THE MERGER
Section 1.1 Constituent Corporations; Consummation of Merger; Closing
Date.
(a) Subject to the provisions hereof, the Bank shall be merged
with and into ST-Bank (which has heretofore and shall hereinafter be referred to
as the "Merger") pursuant to the laws of the State of Texas and the United
States and ST-Bank shall be the surviving corporation (sometimes hereinafter
referred to as "Surviving Corporation" when reference is made to it after the
Effective Time of the Merger (as defined below)). The Merger shall become
effective on the date and at the time on which the Merger is deemed effective by
the Office of the Comptroller of the Currency (such time is hereinafter referred
to as the "Effective Time of the Merger"). Subject to the terms and conditions
hereof, unless otherwise agreed upon by SouthTrust and the Bank, the Effective
Time of the Merger shall occur on the first business day following the later to
occur of (i) the effective date (including expiration of any applicable waiting
period) of the last required Consent (as defined in Section 12.2 of this
Agreement) of any Regulatory Authority (as defined in Section 12.2 of this
Agreement) having authority over the transactions contemplated under this
Agreement and (ii) the date on which the shareholders of the Bank, to the extent
that their approval is required by applicable law, approve the transactions
contemplated by this Agreement, or such other time as the parties may agree.
(b) The closing of the Merger (the "Closing") shall take place
at the principal offices of the Bank at 10:00 a.m. local time on the day that
the Effective Time of the Merger occurs, or such other date and time and place
as the parties hereto may agree (the "Closing Date"). Subject to the provisions
of this Agreement, at the Closing there shall be delivered to each of the
parties hereto the opinions, certificates and other documents and instruments
required to be so delivered pursuant to this Agreement.
(c) The main office of the Bank is located at 3801 Navigation
Boulevard, Houston Texas. The main office of ST-Bank is located at 420 North
20th Street, Birmingham, Alabama.
(d) The proposed main office of the Surviving Corporation
shall be located at Birmingham, Alabama. The branch offices of the Surviving
Corporation shall be the existing branch offices of ST- Bank and the existing
main and branch offices of the Bank.
(e) As of March 31, 1999, ST-Bank had total capital of
$2,974,401,681 divided into 1,020,000 shares of Common Stock, each of $8.83 par
value ("ST-Bank Shares"), surplus of $1,522,342,787, undivided profits,
including capital reserves of $1,449,149,171, and unrealized gains on securities
available for sale of $(6,096,877). As of March 31, 1999, the Bank had total
capital of $7459,987.10 divided into 43,345 shares of Common Stock, each of
$32.50 par value, surplus of $ 5,300,000.00, undivided profits, including
capital reserves of $ 750,687.00, and unrealized gains on securities available
for sale of $ 587.60.
(f) After the Effective Time of the Merger, the Surviving
Corporation shall have total capital stock of $9,006,600 divided into 1,020,000
shares of ST-Bank Shares, authorized, 1,020,000 shares of which shall be issued
and outstanding and no shares of which shall be held as treasury stock.
(g) The Surviving Corporation shall have trust powers.
Section (h) Effect of Merger. At the Effective Time of the Merger, the
Bank shall be merged with and into ST-Bank and the separate existence of the
Bank shall cease. The Articles of Association and Bylaws of ST-Bank, as in
effect on the date hereof and as otherwise amended prior to the Effective Time
of the Merger, shall be the Articles of Association and the Bylaws of the
Surviving Corporation until further amended as provided therein and in
accordance with applicable law. The Surviving Corporation shall have all the
rights, privileges, immunities and powers and shall be subject to all of the
duties and liabilities of a banking association organized under the laws of the
United States and shall thereupon and thereafter possess all other privileges,
immunities and franchises of a private, as well as of a public nature, of each
of the constituent banks. All property (real, personal and mixed) and all debts
on whatever account, including subscriptions to shares, and all choses in
action, all and every other interest, of or belonging to or due to each of the
constituent corporations so merged shall be taken and deemed to be transferred
to and vested in the Surviving Corporation without further act or deed. The
title to any real estate, or any interest therein, vested in any of the
constituent corporations shall not revert or be in any way
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impaired by reason of the Merger. The Surviving Corporation shall thenceforth be
responsible and liable for all the liabilities and obligations of each of the
constituent corporations so merged and any claim existing or action or
proceeding pending by or against either of the constituent corporations may be
prosecuted as if the Merger had not taken place or the Surviving Corporation may
be substituted in its place. Neither the rights of creditors nor any liens upon
the property of any constituent corporation shall be impaired by the Merger.
Section 1.2 Further Assurances. From and after the Effective Time of
the Merger, as and when requested by the Surviving Corporation, the officers and
directors of ST Bank and the Bank last in office shall execute and deliver or
cause to be executed and delivered in the name of ST Bank and the Bank such
deeds and other instruments and take or cause to be taken such further or other
actions as shall be necessary in order to vest or perfect in or confirm of
record or otherwise to the Surviving Corporation title to and possession of all
of the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of ST Bank and the Bank.
Section 1.3 Directors and Officers. From and after the Effective Time
of the Merger, until replaced pursuant to applicable laws and under the
provisions of the Articles of Association and Bylaws of the Surviving
Corporation, the directors of the Surviving Corporation and the officers of the
Surviving Corporation shall be those persons serving as directors and officers
of ST-Bank immediately prior to the Effective Time of the Merger, and such
additional persons, in each case, as SouthTrust, at or prior to the Effective
Time of the Merger, shall designate in writing.
ARTICLE 2
CONVERSION OF CONSTITUENTS' CAPITAL SHARES
Section 2.1 Manner of Conversion of Bank Shares. Subject to the
provisions hereof, as of the Effective Time of the Merger and by virtue of the
Merger and without any further action on the part of SouthTrust, ST-Sub, ST-Bank
or the Bank or the holder of any shares thereof, the shares of the constituent
corporations shall be converted as follows:
(a) Each share of capital stock of ST-Bank outstanding
immediately prior to the Effective Time of the Merger shall, after the Effective
Time of the Merger, remain outstanding and unchanged and thereafter shall
constitute all of the issued and outstanding shares of capital stock of the
Surviving Corporation.
(b) Each share of common stock of the Bank (the "Bank Shares")
held by the Bank or by SouthTrust or ST-Sub (or any of their subsidiaries),
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired and no consideration shall be paid or
delivered in exchange therefor.
(c) Except with regard to Dissenting Bank Shares (as
hereinafter defined in Section 2.1(4) of this Agreement) and the Bank Shares
excluded in 2.1(2) above, each Bank Share outstanding immediately prior to the
Effective Time of the Merger shall be converted into the right to receive
11.1149 shares of common stock of SouthTrust (and the rights associated
therewith issued pursuant to a Rights Agreement dated January 12, 1999 and
effective February 22, 1999 between SouthTrust and ChaseMellon Shareholder
Services, L.L.C.) (together, the "SouthTrust Shares")(such number, as may be
amended in accordance with Section 11.1(8) of this Agreement, being hereinafter
referred to as the "Conversion Ratio"). The Conversion Ratio, including the
aggregate number of SouthTrust Shares issuable in the Merger, shall be subject
to an appropriate adjustment in the event of any stock split, reverse stock
split, dividend payable in SouthTrust Shares, reclassification or similar
distribution whereby SouthTrust issues SouthTrust Shares or any securities
convertible into or exchangeable for SouthTrust Shares without receiving any
consideration in exchange therefor, provided that the record date of such
transaction is a date after the date of the Agreement and prior to the Effective
Time of the Merger.
(d) Each outstanding Bank Share, the holder of which has
demanded and perfected such holder's demand for payment of the fair value of
such share in accordance with Section 5.11 of the Texas Business Corporation Act
and of Section 215a of the National Bank Act, to the extent applicable (the
"Dissent Provisions"), and has not effectively withdrawn or lost the right to
such appraisal (the "Dissenting Bank Shares"), shall not be converted into or
represent a right to receive the SouthTrust Shares issuable in the Merger but
the holder thereof
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shall be entitled only to such rights as are granted by the Dissent Provisions.
The Bank shall give SouthTrust prompt notice upon receipt by the Bank of any
written objection to the Merger and any written demand for payment of the fair
value of any Bank Shares, and of withdrawals of such demands, and any other
instruments provided to the Bank pursuant to the Dissent Provisions (any
shareholder duly making such demand being hereinafter called a "Dissenting
Shareholder"). Each Dissenting Shareholder who becomes entitled, pursuant to the
Dissent Provisions, to payment of fair value for any Bank Shares held by such
Dissenting Shareholder shall receive payment therefor from ST-Bank, as escrow
agent (the "Escrow Agent"), on behalf of the Bank out of funds provided to the
Escrow Agent by the Bank in accordance with the provisions of Section 2.1(5) and
in accordance with the Dissent Provisions and all of such Dissenting
Shareholder's Bank Shares shall be canceled. Neither the Bank nor the Surviving
Corporation shall, except with the prior written consent of SouthTrust,
voluntarily make any payment with respect to, or settle or offer to settle, any
demand for payment by any Dissenting Shareholder. If any Dissenting Shareholder
shall have failed to perfect or shall have effectively withdrawn or lost such
right to demand payment of fair value, the Bank Shares held by such Dissenting
Shareholder shall thereupon be deemed to have been converted into the right to
receive the consideration to be issued in the Merger as provided by this
Agreement.
(e) With respect to each Dissenting Shareholder, on or
immediately prior to the Effective Time of the Merger, the Bank shall deposit
with the Escrow Agent an amount in cash equal to 150% of the consideration (with
the SouthTrust Shares being valued in the manner set forth in Section 2.2 of
this Agreement) such Dissenting Shareholder would have received in the Merger,
but for the exercise of the Dissent Provisions (the "Dissent Escrow"). The
Escrow Agent shall disburse the Dissent Escrow to such Dissenting Shareholders
in accordance with the Dissent Provisions. Any and all funds remaining in the
Dissent Escrow after all such disbursements shall be remitted to the Surviving
Corporation.
Section 2.2 Fractional Shares. Notwithstanding any other provision of
this Agreement, each holder of Bank Shares converted pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a SouthTrust Share
(after taking into account all certificates delivered by such holder), shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of such SouthTrust Share, multiplied by the market value of one
SouthTrust Share at the Effective Time of the Merger in the case of shares
exchanged pursuant to the Merger. The market value of one SouthTrust Share at
the Effective Time of the Merger shall be the last sales price of such
SouthTrust Shares, as reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ/NMS") on the last trading day preceding the
Effective Time of the Merger or, if the SouthTrust Shares hereafter become
listed for trading on any national securities exchange registered under the
Securities Exchange Act of 1934, the last sales price of such SouthTrust Shares
on the applicable date as reported on the principal securities exchange on which
the SouthTrust Shares are then listed for trading. No such holder will be
entitled to dividends, voting rights or any other rights as a shareholder in
respect of any fractional share.
Section 2.3 Effectuating Conversion. (a) SouthTrust shall designate
such institution as it may select, including SouthTrust or one of its
affiliates, to serve as the exchange agent (the "Exchange Agent") pursuant to
this Agreement. The Exchange Agent may employ sub-agents in connection with
performing its duties. As of the Effective Time of the Merger, SouthTrust will
deliver or cause to be delivered to the Exchange Agent the consideration to be
paid by SouthTrust for the Bank Shares, along with an appropriate cash payment
in lieu of fractional interests in SouthTrust Shares. As promptly as practicable
after the Effective Time of the Merger, the Exchange Agent shall send or cause
to be sent to each former holder of record of Bank Shares transmittal materials
(the "Letter of Transmittal") for use in exchanging their certificates formerly
representing Bank Shares for the consideration provided for in this Agreement.
The Letter of Transmittal will contain instructions with respect to the
surrender of certificates representing the Bank Shares and the receipt of the
consideration contemplated by this Agreement and will require each holder of the
Bank Shares to transfer good and marketable title to such Bank Shares to
SouthTrust, free and clear of all liens, claims and encumbrances. Amounts that
would have been payable to Dissenting Shareholders for Bank Shares but for the
fact of their dissent in accordance with the provisions of Section 2.1(4) hereof
shall be returned by the Exchange Agent to SouthTrust as promptly as
practicable.
(b) At the Effective Time of the Merger, the stock transfer
books of the Bank shall be closed as to holders of Bank Shares immediately prior
to the Effective Time of the Merger and no transfer of Bank Shares by any such
holder shall thereafter be made or recognized and each outstanding certificate
formerly representing Bank Shares shall, without any action on the part of any
holder thereof, no longer represent Bank Shares. If, after the Effective Time of
the Merger, certificates are properly presented to the Exchange Agent, such
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certificates shall be promptly exchanged for the consideration contemplated by
this Agreement into which the Bank Shares represented thereby were converted in
the Merger.
(c) In the event that any holder of record as of the
Effective Time of the Merger of Bank Shares is unable to deliver the certificate
which represents such holder's Bank Shares, SouthTrust, in the absence of actual
notice that any Bank Shares theretofore represented by any such certificate have
been acquired by a bona fide purchaser, may, in its discretion, deliver to such
holder the consideration contemplated by this Agreement and the amount of cash
representing fractional SouthTrust Shares to which such holder is entitled in
accordance with the provisions of this Agreement upon the presentation of all of
the following:
(i) an affidavit or other evidence to the reasonable
satisfaction of SouthTrust that any such certificate
has been lost, wrongfully taken or destroyed;
(ii) such security and indemnity as may be reasonably
requested by SouthTrust to indemnify and hold
SouthTrust harmless in respect of such stock
certificate(s); and
(iii) evidence to the satisfaction of SouthTrust that such
holder is the owner of the Bank Shares theretofore
represented by each certificate claimed by such
holder to be lost, wrongfully taken or destroyed and
that such holder is the person who would be entitled
to present each such certificate for exchange
pursuant to this Agreement.
(d) In the event that the delivery of the consideration
contemplated by this Agreement and the amount of cash representing fractional
SouthTrust Shares are to be made to a person other than the person in whose name
any certificate representing Bank Shares surrendered is registered, such
certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer), with the signature(s) appropriately
guaranteed, and otherwise in proper form for transfer, and the person requesting
such delivery shall pay any transfer or other taxes required by reason of the
delivery to a person other than the registered holder of such certificate
surrendered or establish to the satisfaction of SouthTrust that such tax has
been paid or is not applicable.
(e) No holder of Bank Shares shall be entitled to receive
any dividends or distributions declared or made with respect to the SouthTrust
Shares with a record date before the Effective Time of the Merger. After the
Effective Time of the Merger, and until properly surrendered and exchanged
pursuant to this Agreement, each outstanding certificate representing Bank
Shares, subject to this Section 2.3(5), shall be deemed to represent and
evidence for all corporate purposes only the right to receive the consideration
into which such Bank Shares were converted as of the Effective Time of the
Merger. Accordingly, among other matters, neither the consideration contemplated
by this Agreement, any amount of cash representing fractional SouthTrust Shares
nor any dividend or other distribution with respect to SouthTrust Shares where
the record date thereof is on or after the Effective Time of the Merger shall be
paid, and SouthTrust shall not be obligated to pay, to the holder of any
unsurrendered certificate or certificates representing Bank Shares until such
holder shall surrender the certificate or certificates representing the Bank
Shares as provided for by this Agreement, and until such holder becomes the
record holder of the SouthTrust Shares issuable in the Merger, such holder shall
not be entitled to vote such SouthTrust Shares in respect of any matter coming
before the stockholders of SouthTrust. Subject to applicable laws, following
surrender of any such certificate or certificates, there shall be paid to the
holder of the certificate or certificates then representing SouthTrust Shares
issued in the Merger, without interest at the time of such surrender, the
consideration contemplated by this Agreement, the amount of any cash
representing fractional SouthTrust Shares and the amount of any accrued
dividends or other distributions with respect to SouthTrust Shares to which such
holder is entitled as a holder of SouthTrust Shares in accordance with the
foregoing.
Section 2.4 Laws of Escheat. If any of the consideration due or
other payments to be paid or delivered to the holders of Bank Shares is not paid
or delivered within the time period specified by any applicable laws concerning
abandoned property, escheat or similar laws, and if such failure to pay or
deliver such consideration occurs or arises out of the fact that such property
is not claimed by the proper owner thereof, SouthTrust or the Exchange Agent
shall be entitled to dispose of any such consideration or other payments in
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accordance with applicable laws concerning abandoned property, escheat or
similar laws. Any other provision of this Agreement notwithstanding, none of the
Bank, SouthTrust, ST-Sub, ST-Bank, the Exchange Agent nor any other person
acting on their behalf shall be liable to a holder of Bank Shares for any amount
paid or property delivered in good faith to a public official pursuant to and in
accordance with any applicable abandoned property, escheat or similar law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank hereby represents and warrants to ST-Bank, ST-Sub and
SouthTrust as follows as of the date hereof and as of all times up to and
including the Effective Time of the Merger (except as otherwise provided):
Section 3.1 Corporate Organization. (a) The Bank is a banking
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. The Bank has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as such
business is now being conducted, and the Bank is duly licensed or qualified to
do business in each state or other jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it make such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect (as defined in Section 12.2 of this Agreement) on the
Bank. True and correct copies of the Articles of Association of the Bank and the
Bylaws of the Bank, each as amended to the date hereof, have been delivered to
SouthTrust.
(b) The Bank has in effect all federal, state, local and
foreign governmental, regulatory and other authorizations, permits and licenses
necessary for it to own or lease its properties and assets and to carry on its
business as now conducted, except for authorizations, permits and licenses, the
absence of which, either individually or in the aggregate, would not have a
Material Adverse Effect on the Bank.
(c) The Bank does not own any capital stock of any subsidiary,
or have any interest in any partnership or joint venture. For purposes of this
Agreement, a "subsidiary" means any corporation or other entity of which the
party referred to beneficially owns, controls, or has the power to vote,
directly or indirectly, more than 5% of the outstanding equity securities.
(d) The minute books of the Bank contain complete and accurate
records in all material respects of all meetings and other corporate actions
held or taken by its shareholders and Board of Directors (including all
committees thereof).
Section 3.2 Capitalization. The authorized capital stock of the Bank
consists of 43,345 shares of common stock, par value of $32.50, 43,345 shares of
which as of the date hereof are issued and outstanding (none of which are held
in the treasury of the Bank) (the "Bank Shares"). All of the issued and
outstanding Bank Shares have been duly authorized and validly issued and all
such shares are fully paid and nonassessable. As of the date hereof, there are
no outstanding options, warrants, commitments or other rights or instruments to
purchase or acquire any shares of capital stock of the Bank, or any securities
or rights convertible into or exchangeable for shares of capital stock of the
Bank.
Section 3.3 Financial Statements; Filings. (a) The Bank has previously
delivered to SouthTrust copies of the financial statements of the Bank as of and
for each of the three (3) fiscal years of the Bank ended immediately prior to
the date of this Agreement and the interim financial statements of the Bank as
of and for each of the fiscal periods of the Bank ended after the close of the
most recently completed fiscal year of the Bank and prior to the date of this
Agreement, and the Bank shall deliver to SouthTrust, as soon as practicable
following the preparation of additional financial statements for each subsequent
interim fiscal period or year of the Bank, the financial statements of the Bank
as of and for such subsequent interim fiscal period or year (such financial
statements, unless otherwise indicated, being hereinafter referred to
collectively as the "Financial Statements of the Bank").
(b) The Bank has previously delivered to SouthTrust copies of
the Call Reports of the Bank as of and for each of the three (3) fiscal years of
the Bank ended immediately prior to this Agreement and the
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Call Reports of the Bank as of and for the interim fiscal periods after the end
of the most recent fiscal year and prior to the date of this Agreement, and the
Bank shall deliver to SouthTrust, as soon as practicable following the
preparation of additional Call Reports for each subsequent interim fiscal period
or year of the Bank, the Call Reports of the Bank as of and for each such
subsequent interim fiscal period or year (such Call Reports, unless otherwise
indicated, being hereinafter referred to collectively as the "Call Reports of
the Bank").
(c) Each of the Financial Statements of the Bank and each of
the Call Reports of the Bank (including the related notes, where applicable)
have been or will be prepared in all material respects in accordance with
generally accepted accounting principles or regulatory accounting principles,
whichever is applicable, which principles have been or will be consistently
applied during the periods involved, except as otherwise noted therein, and the
books and records of the Bank have been, are being, and will be maintained in
all material respects in accordance with applicable legal and accounting
requirements and reflect only actual transactions. Each of the Financial
Statements of the Bank and each of the Call Reports of the Bank (including the
related notes, where applicable) fairly present or will fairly present the
financial position of the Bank as of the respective dates thereof and fairly
present or will fairly present the results of operation of the Bank on a
consolidated basis for the respective periods therein set forth.
(d) To the extent not prohibited by law, the Bank has
heretofore delivered or made available, or caused to be delivered or made
available, to SouthTrust all reports and filings made or required to be made by
the Bank with the Regulatory Authorities, and will from time to time hereafter
furnish to SouthTrust, upon filing or furnishing the same to the Regulatory
Authorities, all such reports and filings made after the date hereof with the
Regulatory Authorities. At the respective dates of such reports and filings, all
such reports and filings did not and shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(e) Except as reflected on DISCLOSURE SCHEDULE 3.3(E) hereto,
since December 31, 1998, the Bank has not incurred any obligation or liability
(contingent or otherwise) that has or might reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Bank except
obligations and liabilities (i) which are accrued or reserved against in the
Financial Statements of the Bank as of December 31, 1998 or the Call Reports of
the Bank, or reflected in the notes thereto, or (ii) which were incurred after
December 31, 1998, in the ordinary course of business consistent with past
practices. Since December 31, 1998, the Bank has not incurred or paid any
obligation or liability which would have a Material Adverse Effect on the Bank,
except as may have been incurred or paid in the ordinary course of business,
consistent with past practices.
Section 3.4 Loan Portfolio; Reserves. Except as set forth in DISCLOSURE
SCHEDULE 3.4, (i) all evidences of indebtedness in original principal amount in
excess of $10,000 reflected as assets in the Financial Statements of the Bank
and the Call Reports of the Bank as of and for the year ended December 31, 1998
were as of such dates in all respects the binding obligations of the respective
obligors named therein in accordance with their respective terms, and were not
subject to any defenses, setoffs, or counterclaims, except as may be provided by
bankruptcy, insolvency or similar laws or by general principles of equity; (ii)
the allowances for possible loan losses shown on the Financial Statements of the
Bank and the Call Reports of the Bank as of and for the year ended December 31,
1998 were, and the allowance for possible loan losses to be shown on the
Financial Statements of the Bank and the Call Reports of the Bank as of any date
subsequent to the execution of this Agreement will be, as of such dates,
adequate to provide for possible losses, net of recoveries relating to loans
previously charged off, in respect of loans outstanding (including accrued
interest receivable) of the Bank and other extensions of credit (including
letters of credit or commitments to make loans or extend credit); (iii) the
reserve for losses with respect to other real estate owned ("OREO Reserve")
shown on the Financial Statements of the Bank and the Call Reports of the Bank
as of and for the year ended December 31, 1998 were, and the OREO Reserve to be
shown on the Financial Statements of the Bank and the Call Reports of the Bank
as of any date subsequent to the execution of this Agreement will be, as of such
dates, adequate to provide for losses relating to the other real estate owned
portfolio of the Bank as of the dates thereof; (iv) the reserve for losses in
respect of litigation ("Litigation Reserve") shown on the Financial Statements
of the Bank and the Call Reports of the Bank as of and for the year ended
December 31, 1998 were, and the Litigation Reserve to be shown on the Financial
Statements of the Bank, and the Call Reports of the Bank as of any date
subsequent to the execution of this Agreement will be, as of such dates,
adequate to provide for losses relating to or arising out of all pending or
threatened litigation applicable to the Bank as of the dates
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thereof, and (v) each such allowance or reserve described above has been
established in accordance with the accounting principles described in Section
3.3(c) and applicable regulatory requirements and guidelines.
Section 3.5 Certain Loans and Related Matters. Except as set forth in
DISCLOSURE SCHEDULE 3.5, the Bank is not a party to any written or oral: (i)
loan agreement, note or borrowing arrangement, other than credit card loans and
other loans the unpaid balance of which does not exceed $10,000 per loan, under
the terms of which the obligor is sixty (60) days delinquent in payment of
principal or interest or is in default of any other provision as of the date
hereof; (ii) loan agreement, note or borrowing arrangement which has been
classified or, in the exercise of reasonable diligence by the Bank or any
Regulatory Authority, should have been classified as "substandard", "doubtful",
"loss," "other loans especially mentioned," "other assets especially mentioned"
or any other comparable classification; or (iii) loan agreement, note or
borrowing arrangement, including any loan guaranty, with any director or
executive officer of the Bank or any ten percent (10%) shareholder of the Bank,
or any person, corporation or enterprise controlling, controlled by or under
common control with any of the foregoing; or (iv) loan agreement, note or
borrowing arrangement in violation of any law, regulation or rule applicable to
the Bank including, but not limited to, those promulgated, interpreted or
enforced by any of the Regulatory Authorities and which violation could have a
Material Adverse Effect on the Bank. As of the date of any Financial Statement
of the Bank and any Call Reports of the Bank subsequent to the execution of this
Agreement, including the date of the Financial Statements of the Bank and the
Call Reports of the Bank that immediately preceded the Effective Time of the
Merger, there will not be any material increase in the loan agreements, notes or
borrowing arrangements described in (i) through (iv) above and DISCLOSURE
SCHEDULE 3.5.
Section 3.6 Authority; No Violation. (a) The Bank has full corporate
power and authority to execute and deliver this Agreement and, subject to the
approval of the shareholders of the Bank and to the receipt of the Consents of
the Regulatory Authorities and the other Consents referred to in Section 3.7
hereof, to consummate the transactions contemplated hereby. The Board of
Directors of the Bank has duly and validly approved this Agreement and the
transactions contemplated hereby, has authorized the execution and delivery of
this Agreement, has directed that this Agreement and the transactions
contemplated hereby be submitted and recommended to the Bank's shareholders for
approval at a meeting of such shareholders and, except for the adoption of such
Agreement by its shareholders, no other corporate proceedings on the part of the
Bank are necessary to consummate the Merger and the other transactions
contemplated by this Agreement. This Agreement, when duly and validly executed
by the Bank and delivered by the Bank, will constitute a valid and binding
obligation of the Bank, and will be enforceable against the Bank in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought.
(b) Neither the execution and delivery of this Agreement by
the Bank nor the consummation by the Bank of the transactions contemplated
hereby, nor compliance by the Bank with any of the terms or provisions hereof,
will (i) violate any provision of the Articles of Incorporation or Bylaws of the
Bank, (ii) assuming that any necessary Consents, including, but not limited to,
those of the Regulatory Authorities, referred to herein are duly obtained, (A)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to the Bank or any of its properties or assets,
or (B) violate, conflict with, result in a breach of any provisions of,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of, accelerate the
performance required by or result in the creation of any lien, security
interest, charge or other encumbrance upon any of the respective properties or
assets of the Bank under, any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, deed of trust, license, permit, lease,
agreement or other instrument or obligation to which the Bank is a party, or by
which the Bank or any of its properties or assets may be bound or affected.
Section 3.7 Consents and Approvals. Except for (i) the approval of the
shareholders of the Bank pursuant to the proxy statement of the Bank relating to
the meeting of the shareholders of the Bank at which the Merger is to be
considered (the "Proxy Statement"); (ii) the Consents of the Regulatory
Authorities; (iii) the approval of this Agreement by the sole shareholder of
ST-Bank; and (iv) as set forth in DISCLOSURE SCHEDULE 3.7, no Consents of any
person are necessary in connection with the execution and delivery by the Bank
of this Agreement, and the consummation by the Bank of the Merger and the other
transactions contemplated hereby.
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Section 3.8 Broker's Fees. Except as described in this Section 3.8,
the Bank nor any of its respective officers or directors, has not employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement. The Bank is a party to a letter agreement, dated March 26, 1999,
pursuant to which, in return for the services of Hoefer and Arnett Incorporated
provided in connection with the transactions contemplated by this Agreement, the
Bank shall pay a fee equal to one per cent (1%) of the purchase price paid by
SouthTrust.
Section 3.9 Absence of Certain Changes or Events. Since December 31,
1998, there has not been, and except as disclosed on DISCLOSURE SCHEDULE 3.9 and
as otherwise provided in Section 5.1(2) of this Agreement during the period from
the date of this Agreement to the Closing Date, there will not be (i) any
declaration, payment or setting aside of any dividend or distribution (whether
in cash, stock or property) in respect of the Bank Shares or (ii) any Material
Adverse Effect on the Bank including, without limitation, any change in the
administration or supervisory standing or rating of the Bank with any Regulatory
Authority, and no fact or condition exists as of the date hereof which might
reasonably be expected to cause any such event or change in the future.
Section 3.10 Legal Proceedings; Etc. Except as set forth in DISCLOSURE
SCHEDULE 3.10, the Bank is not a party to any, and there are no pending or, to
the knowledge of the Bank, threatened, judicial, administrative, arbitral or
other proceedings, claims, actions, causes of action or governmental
investigations against the Bank challenging the validity of the transactions
contemplated by this Agreement and, to the knowledge of the Bank as of the date
hereof, there is no proceeding, claim, action or governmental investigation
against the Bank, and no judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency, instrumentality or
arbitrator is outstanding against the Bank which has or might reasonably be
expected to have a Material Adverse Effect on the Bank. There is no default by
the Bank under any material contract agreement to which the Bank is a party. The
Bank is not a party to any agreement, order or memorandum in writing by or with
any Regulatory Authority restricting the operations of the Bank and the Bank has
not been advised by any Regulatory Authority that any such Regulatory Authority
is contemplating issuing or requesting the issuance of any such order or
memorandum in the future.
Section 3.11 Taxes and Tax Returns. (a) The Bank has previously
delivered or made available to SouthTrust copies of the federal, state and local
income tax returns of the Bank for the years 1995, 1996, and 1997 and all
schedules and exhibits thereto, and, will provide SouthTrust with a copy of all
federal, state and local income tax returns for the year 1998, with all
schedules and exhibits thereto, when such returns are filed, and, to the
knowledge of the Bank such returns have not been examined by the Internal
Revenue Service or any other taxing authority. Except as reflected in DISCLOSURE
SCHEDULE 3.11(1), the Bank has duly filed in correct form all federal, state and
local information returns and tax returns required to be filed on or prior to
the date hereof, and the Bank has duly paid or made adequate provisions for the
payment of all taxes and other governmental charges which are owed by the Bank
to any federal, state or local taxing authorities, whether or not reflected in
such returns (including, without limitation, those owed in respect of the
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls of the Bank), other than taxes and other charges which (i)
are not yet delinquent or are being contested in good faith or (ii) have not
been finally determined. The amounts set forth as liabilities for taxes on the
Financial Statements of the Bank and the Call Reports of the Bank are
sufficient, in the aggregate, for the payment of all unpaid federal, state and
local taxes (including any interest or penalties thereon), whether or not
disputed, accrued or applicable, for the periods then ended, and have been
computed in accordance with generally accepted accounting principles consistent
with past practices. The Bank is not responsible for the taxes of any other
person other than the Bank under Treasury Regulation 1.1502-6 or any similar
provision of federal, state or foreign law.
(b) Except as disclosed in DISCLOSURE SCHEDULE 3.11(2), the
Bank has not executed an extension or waiver of any statute of limitations on
the assessment or collection of any federal, state or local taxes due that is
currently in effect, and deferred taxes of the Bank, have been adequately
provided for in the Financial Statements of the Bank.
(c) Except as disclosed in DISCLOSURE SCHEDULE 3.11(3), the
Bank has not made any payment, is not obligated to make any payment and is not a
party to any contract, agreement or other arrangement that could obligate it to
make any payment that would be disallowed as a deduction under Section 280G or
162(m) of the Code.
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(d) There has not been an ownership change, as defined in
Section 382(g) or the Code, of the Bank that occurred during or after any
taxable period in which the Bank incurred an operating loss that carries over to
any taxable period ending after the fiscal year of the Bank immediately
preceding the date of this Agreement.
(e) (i) Proper and accurate amounts have been withheld by the
Bank from its employees and others for all prior periods in compliance in all
material respects with the tax withholding provisions of all applicable federal,
state and local laws and regulations, and proper due diligence steps have been
taken in connection with back-up withholding, (ii) federal, state and local
returns have been filed by the Bank for all periods for which returns were due
with respect to withholding, Social Security and unemployment taxes or charges
due to any federal, state or local taxing authority and (iii) the amounts shown
on such returns to be due and payable have been paid in full or adequate
provision therefor have been included by the Bank in the Financial Statements of
the Bank.
Section 3.12 Employee Benefit Plans. (a) The Bank does not have or
maintain any "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), except as
described in DISCLOSURE SCHEDULE 3.12(1).
(b) The Bank (or any pension plan maintained by it) has not
incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC") or
the Internal Revenue Service with respect to any pension plan qualified under
Section 401 of the Code, except liabilities to the PBGC pursuant to Section 4007
of ERISA, all which have been fully paid. No reportable event under Section
4043(b) of ERISA (including events waived by PBGC regulation) has occurred with
respect to any such pension plan.
(c) The Bank has not incurred any material liability under
Section 4201 of ERISA for a complete or partial withdrawal from, or agreed to
participate in, any multi-employer plan as such term is defined in Section 3(37)
of ERISA.
(d) All "employee benefit plans," as defined in Section 3(3)
of ERISA, that are maintained by the Bank comply in all material respects with
ERISA and the Code that are applicable, or intended to be applicable, to such
"employee benefit plans." The Bank has no material liability under any such
plans. All documents, summaries, forms or other information required to be
provided to participants in such employee benefit plans or to be filed or
provided to any governmental agency in connection with such plans have been, and
during the period from the date of this Agreement to the Closing Date, will be
so provided or filed on a timely basis.
(e) No prohibited transaction (which shall mean any
transaction prohibited by Section 406 of ERISA and not exempt under Section 408
of ERISA) has occurred with respect to any employee benefit plan maintained by
the Bank (i) which would result in the imposition, directly or indirectly, of a
material excise tax under Section 4975 of the Code or a material civil penalty
under Section 502(i) of ERISA, or (ii) the correction of which would have a
Material Adverse Effect on the Bank ; and no actions have occurred which could
result in the imposition of a penalty under any section or provision of ERISA.
(f) No employee benefit plan which is a defined benefit
pension plan has any "unfunded current liability," as that term is defined in
Section 302(d)(8)(A) of ERISA, and the present fair market value of the assets
of any such plan exceeds the plan's "benefit liabilities," as that term is
defined in Section 4001(a)(16) of ERISA, when determined under actuarial factors
that would apply if the plan terminated in accordance with all applicable legal
requirements.
(g) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
officer or employee of the Bank under any benefit plan or otherwise, (ii)
materially increase any benefits otherwise payable under any benefit plan or
(iii) result in any acceleration of the time of payment or vesting of any such
benefits to any material extent.
Section 3.13 Title and Related Matters. (a) Except as set forth in
DISCLOSURE SCHEDULE 3.13(1), the Bank has good title, and as to owned real
property, has good and marketable title in fee simple absolute, to all assets
and properties, real or personal, tangible or intangible, reflected as owned by
it or carried under its name on
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the Financial Statements of the Bank or the Call Reports of the Bank or acquired
subsequent thereto (except to the extent that such assets and properties have
been disposed of for fair value in the ordinary course of business since
December 31, 1998), free and clear of all liens, encumbrances, mortgages,
security interests, restrictions, pledges or claims, except for (i) those liens,
encumbrances, mortgages, security interests, restrictions, pledges or claims
reflected in the Financial Statements of the Bank and the Call Reports of the
Bank or incurred in the ordinary course of business after December 31, 1998,
(ii) statutory liens for amounts not yet delinquent or which are being contested
in good faith, and (iii) liens, encumbrances, mortgages, security interests,
pledges, claims and title imperfections that do not in the aggregate have a
Material Adverse Effect on the Bank.
(b) All agreements pursuant to which the Bank leases,
subleases or licenses material real or material personal properties from others
are valid, binding and enforceable in accordance with their respective terms,
and there is not, under any of such leases or licenses, any existing default or
event of default, or any event which with notice or lapse of time, or both,
would constitute a default or force majeure, or provide the basis for any other
claim of excusable delay or nonperformance, except for defaults which
individually or in the aggregate would not have a Material Adverse Effect on the
Bank. Except as set forth in DISCLOSURE SCHEDULE 3.13(2), the Bank has all
right, title and interest as a lessee under the terms of each lease or sublease,
free and clear of all liens, claims or encumbrances (other than the rights of
the lessor), as of the Effective Time of the Merger, and shall have the right to
transfer each lease or sublease pursuant to this Agreement.
(c) Other than real estate owned, acquired by foreclosure or
voluntary deed in lieu of foreclosure (i) all of the buildings, structures and
fixtures owned, leased or subleased by the Bank are in good operating condition
and repair, subject only to ordinary wear and tear and/or minor defects which do
not interfere with the continued use thereof in the conduct of normal
operations, and (ii) all of the material personal properties owned, leased or
subleased by the Bank are in good operating condition and repair, subject only
to ordinary wear and tear and/or minor defects which do not interfere with the
continued use thereof in the conduct of normal operations.
Section 3.14 Real Estate. (a) DISCLOSURE SCHEDULE 3.14(1) identifies
and sets forth a complete legal description for each parcel of real estate or
interest therein owned, leased or subleased by the Bank or in which the Bank has
any ownership or leasehold interest.
(b) DISCLOSURE SCHEDULE 3.14(2) lists or otherwise describes
and sets forth each and every written or oral lease or sublease, together with
the current name, address and telephone number of the landlord or sublandlord
and the landlord's property manager (if any), under which the Bank is the lessee
or sublessee of any real property and which relates in any manner to the
operation of the businesses of the Bank.
(c) The Bank has not violated, and is not currently in
violation of, any law, regulation or ordinance relating to the ownership or use
of the real estate and real estate interests described in DISCLOSURE SCHEDULES
3.14(1) and 3.14(2) including, but not limited to, any law, regulation or
ordinance relating to zoning, building, occupancy, environmental or comparable
matter which individually or in the aggregate would have a Material Adverse
Effect on the Bank.
(d) DISCLOSURE SCHEDULE 3.14(4) lists or otherwise describes
with respect to each parcel of leased property described on DISCLOSURE SCHEDULE
3.14(2), each and every Consent required to facilitate the full and complete
assignment of all right, title and interest of the Lessee in such lease or
sublease to the Surviving Corporation and the use and operation of such real
property of the Surviving Corporation.
(e) As to each parcel of real property owned or used by the
Bank, the Bank has not received notice of any pending or, to the knowledge of
the Bank, threatened condemnation proceedings, litigation proceedings or
mechanics or materialmen's liens.
Section 3.15 Environmental Matters.
(a) Each of the Bank, the Participation Facilities (as defined
in Section 12.2 of this Agreement), and the Loan Properties (as defined in
Section 12.2 of this Agreement) are, and have been, in compliance with all
applicable laws, rules, regulations, standards and requirements of the United
States Environmental Protection Agency and all state and local agencies with
jurisdiction over pollution or protection of
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the environment, except for violations which, individually or in the aggregate,
will not have a Material Adverse Effect on the Bank.
(b) There is no litigation pending or, to the knowledge
of the Bank, threatened before any court, governmental agency or board or other
forum in which the Bank or any Participation Facility has been or, with respect
to threatened litigation may be, named as defendant (i) for alleged
noncompliance (including by any predecessor), with any Environmental Law (as
defined in Section 12.2 of this Agreement) or (ii) relating to the release into
the environment of any Hazardous Material (as defined in Section 12.2 of this
Agreement) or oil, whether or not occurring at or on a site owned or leased or
operated by the Bank or any Participation Facility, except for such litigation
pending or threatened that will not, individually or in the aggregate, have a
Material Adverse Effect on the Bank.
(c) There is no litigation pending or, to the knowledge
of the Bank, threatened before any court, governmental agency or board or other
forum in which any Loan Property (or the Bank in respect of such Loan Property)
has been or, with respect to threatened litigation, may be, named as a defendant
or potentially responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material or oil, whether or not occurring at, on or
involving a Loan Property, except for such litigation pending or threatened that
will not individually or in the aggregate, have a Material Adverse Effect on the
Bank.
(d) To the knowledge of the Bank, there is no reasonable
basis for any litigation of a type described in Sections 3.15(2) or 3.15(3) of
this Agreement, except as will not have, individually or in the aggregate, a
Material Adverse Effect on the Bank.
(e) During the period of (i) ownership or operation by
the Bank of any of its current properties, or (ii) to the knowledge of the Bank,
participation by the Bank in the management of any Participation Facility, or
(iii) to the knowledge of the Bank, holding by the Bank of a security interest
in a Loan Property, there have been no releases of Hazardous Material or oil in,
on, under or affecting such properties, except where such releases have not and
will not, individually or in the aggregate, have a Material Adverse Effect on
the Bank.
(f) Prior to the period of (i) ownership or operation by
the Bank of any of its current properties, (ii) participation by the Bank in the
management of any Participation Facility, or (iii) holding by the Bank of a
security interest in any Loan Property, to the knowledge of the Bank, there were
no releases of Hazardous Material or oil in, on, under or affecting any such
property, Participation Facility or Loan Property, except where such releases
have not and will not, individually or in the aggregate, have a Material Adverse
Effect on the Bank.
Section 3.16 Commitments and Contracts. (a) Except as set forth in
DISCLOSURE SCHEDULE 3.16(1), the Bank is not a party or subject to any of the
following (whether written or oral, express or implied):
(i) any employment contract or understanding (including
any agreement or plan with respect to severance or
termination pay liabilities or fringe benefits) with
any present or former officer, director, employee,
including in any such person's capacity as a
consultant (other than those which either are
terminable at will without any further amount being
payable thereunder or as a result of such termination
by the Bank);
(ii) any labor contract or agreement with any labor union;
(iii) any contracts or covenants which limit the ability of
the Bank to compete in any line of business or which
involve any restriction of the geographical area in
which the Bank may carry on its business (other than
as may be required by law or applicable regulatory
authorities);
(iv) any lease (other than real estate leases described on
DISCLOSURE SCHEDULE 3.14(2)) or other agreements or
contracts with annual payments aggregating $5,000 or
more; or
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(v) any other contract or agreement which would be
required to be disclosed in reports filed by the Bank
with any Regulatory Authority which has not been so
disclosed.
(b) Except as set forth in DISCLOSURE SCHEDULE 3.16(2), there
is not, under any agreement, lease or contract to which the Bank is a party, any
existing default or event of default, or any event which with notice or lapse of
time, or both, would constitute a default or force majeure, or provide the basis
for any other claim of excusable delay or non-performance.
Section 3.17 Regulatory, Accounting and Tax Matters. The Bank has not
taken or agreed to take any action, has no knowledge of any fact and has not
agreed to any circumstance that would (i) materially impede or delay receipt of
any Consents of any Regulatory Authorities referred to in this Agreement, (ii)
prevent the transactions contemplated by this Agreement from qualifying as a
reorganization within the meaning of Section 368(a) of the Code, or (iii)
materially impede the ability of SouthTrust to account for the transactions
contemplated by this Agreement as a pooling of interests.
Section 3.18 Registration Obligations. The Bank is not under any
obligation, contingent or otherwise, which will survive the Merger, to register
any of its securities under the Securities Act of 1933 (the "Act") or any state
securities laws.
Section 3.19 State Takeover Laws. This Agreement and the transactions
contemplated hereby are not subject to or restricted by any applicable state
anti-takeover statute.
Section 3.20 Insurance. The Bank is presently insured, and during each
of the past three (3) calendar years has been insured, for reasonable amounts
against such risks as banks and financial institutions engaged in a similar
business and of a similar size would, in accordance with good business practice,
customarily be insured. To the knowledge of the Bank, the policies of fire,
theft, liability and other insurance maintained with respect to the assets or
businesses of the Bank provide adequate coverage against loss, and the fidelity
bonds in effect as to which the Bank is named an insured are sufficient for
their purpose. Such policies of insurance are listed and described in DISCLOSURE
SCHEDULE 3.20.
Section 3.21 Labor. No work stoppage involving the Bank is pending as
of the date hereof or, to the knowledge of the Bank, threatened. The Bank is not
involved in, or, to the knowledge of the Bank, threatened with or affected by,
any proceeding asserting that the Bank has committed an unfair labor practice or
any labor dispute, arbitration, lawsuit or administrative proceeding which might
reasonably be expected to have a Material Adverse Effect on the Bank. No union
represents or claims to represent any employees of the Bank, and, to the
knowledge of the Bank, no labor union is attempting to organize employees of the
Bank.
Section 3.22 Compliance with Laws. The Bank has conducted its business
and owned its assets in accordance with all applicable federal, foreign, state
and local laws, regulations and orders, and is in compliance with such laws,
regulations and orders, except for such violations or non-compliance, which when
taken together as a whole, will not have a Material Adverse Effect on the Bank.
Except as disclosed in DISCLOSURE SCHEDULE 3.22, the Bank:
(a) is not in violation of any laws, regulations, rules,
orders or permits applicable to its business or the employees or agents or
representatives conducting its business, except for violations which
individually or in the aggregate do not have and will not have a Material
Adverse Effect on the Bank; and
(b) has not received a notification or communication from any
agency or department of federal, state or local government or the Regulatory
Authorities or the staff thereof (i) asserting that the Bank is not in
compliance with any laws, regulations, rules, orders or permits which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have a Material Adverse Effect on the
Bank, (ii) threatening to revoke any permit, the revocation of which is
reasonably likely to have a Material Adverse Effect on the Bank, (iii) requiring
the Bank to enter into any cease and desist order, formal agreement, commitment
or memorandum of understanding, or to adopt any resolutions or similar
undertakings, or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit in any manner, the operations of the Bank, including,
without limitation, any restrictions on the payment of dividends.
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Section 3.23 Transactions with Management. Except for (a) deposits, all
of which are on terms and conditions comparable to those made available to other
customers of the Bank at the time such deposits were entered into, (b) the loans
listed on DISCLOSURE SCHEDULE 3.5, (c) the agreements listed on DISCLOSURE
SCHEDULE 3.16(1), (d) obligations under employee benefit plans of the Bank as
set forth on DISCLOSURE SCHEDULE 3.12(1), and (e) the items described on
DISCLOSURE SCHEDULE 3.23, there are no contracts with or commitments to present
or former stockholders, directors, officers or employees involving the
expenditure of more than $1,000 as to any one individual, including, any
business directly or indirectly controlled by any such person, or $5,000 for all
such contracts or commitments in the aggregate for all such individuals.
Section 3.24 Derivative Contracts. The Bank is not a party to nor has
agreed to enter into an exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial contract or agreement, or any
other contract or agreement not included in the Financial Statements of the Bank
which is a financial derivative contract (including various combinations
thereof) ("Derivative Contracts"), except for those Derivative Contracts set
forth in DISCLOSURE SCHEDULE 3.24.
Section 3.25 Deposits. Except as set forth in DISCLOSURE SCHEDULE 3.25,
none of the deposits of the Bank (i) is a "brokered" deposit, (ii) is subject to
any encumbrance, legal restraint or other legal process (other than
garnishments, pledges, set off rights, escrow limitations and similar actions
taken in the ordinary course of business), and (iii) no portion of such deposits
represents a deposit of any affiliate of the Bank.
Section 3.26 Accounting Controls. The Bank has devised and maintained
systems of internal accounting control sufficient to provide reasonable
assurances that: (i) all material transactions are executed in accordance with
general or specific authorization of the Board of Directors and the duly
authorized executive officers of the Bank; (ii) all material transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles consistently applied
with respect to institutions such as the Bank or any other criteria applicable
to such financial statements, and to maintain proper accountability for items
therein; (iii) access to the material properties and assets of the Bank is
permitted only in accordance with general or specific authorization of the Board
of Directors and the duly authorized executive officers of the Bank; and (iv)
the recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate actions taken with respect to any
differences.
Section 3.27 Proxy Materials. None of the information relating to the
Bank to be included or incorporated by reference in (i) the proxy statement
included in the proxy solicitation materials to be mailed to the shareholders of
the Bank (the "Proxy Statement"), (ii) the registration statement on Form S-4
(the "Registration Statement") covering the SouthTrust Shares to be issued to
the holders of the Bank Shares pursuant to the Merger, (iii) the registration
statement on Form S-3 (the "Post-Effective Registration Statement") covering the
SouthTrust Shares to be issued to the holders of Bank Shares pursuant to the
Merger if the Bank elects, pursuant to Section 6.2 of this Agreement, to require
the SouthTrust Shares to be issued pursuant to the exemption from the
registration requirements of the Act afforded by Section 4(2) of the Act, or
(iv) any other documents or registration statements to be filed with the any
Regulatory Authority in connection with the transactions contemplated by this
Agreement will, at the respective times such documents are filed with any
Regulatory Authority and, in the case of the Registration Statement or
Post-Effective Registration Statement, if applicable, when it becomes effective
and, with respect to the Proxy Statement, when mailed, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any early communication with respect to
the solicitation of any proxy, if required. The legal responsibility for the
contents of the information supplied by the Bank and relating to the Bank which
is either included or incorporated by reference in the Proxy Statement, the
Registration Statement, the Post-Effective Registration Statement, if
applicable, or any other document or registration statement filed with any
Regulatory Authority shall be and remain with the Bank.
Section 3.28 Deposit Insurance. The deposit accounts of the Bank are
insured by the Bank Insurance Fund ("BIF") in accordance with the provisions of
the Federal Deposit Insurance Act (the "Act"). The Bank has paid all regular
premiums and special assessments and filed all reports required under the Act.
Section 3.29 Year 2000. Except as specifically set forth in DISCLOSURE
SCHEDULE 3.29, all computer software necessary for the conduct of the business
of the Bank (the "Software") is designed to be used
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prior to, during and after the calendar year 2000 A.D., and the Software will
operate during each such time period without error relating to the year 2000,
specifically including any error relating to, or the product of, date data which
represents or references different centuries or more than one century. The
Software accepts, calculates, sorts, extracts, and otherwise processes date
inputs and date values, and returns and displays date values, in a consistent
manner regardless of the dates used, whether before, on, or after January 1,
2000.
Section 3.30 Untrue Statements and Omissions. No representation or
warranty contained in Article 3 of this Agreement or in the Disclosure Schedules
of the Bank contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
SOUTHTRUST, ST-SUB AND ST-BANK
SouthTrust, ST-Sub (with respect to Section 4.2 only) and ST-Bank (with
respect to Section 4.3 only) hereby represent and warrant to Bank as follows as
of the date hereof and as of all times up to and including the Effective Time of
the Merger (except as otherwise provided):
Section 4.1 Organization and Related Matters of SouthTrust. (a)
SouthTrust is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. SouthTrust has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as now conducted, or as proposed to be conducted pursuant
to this Agreement, and SouthTrust is licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted by SouthTrust,
or the character or location of the properties and assets owned or leased by
SouthTrust makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified (or steps necessary to cure such failure)
would not have a Material Adverse Effect on SouthTrust. SouthTrust is duly
registered as a bank holding company under the Bank Holding Bank Act of 1956, as
amended. True and correct copies of the Articles of Incorporation of SouthTrust
and the Bylaws of SouthTrust, each as amended to the date hereof, have been made
available to the Bank.
(b) SouthTrust has in effect all federal, state, local and
foreign governmental, regulatory and other authorizations, permits and licenses
necessary for it to own or lease its properties and assets and to carry on its
business as now conducted, the absence of which, either individually or in the
aggregate, would have a Material Adverse Effect on SouthTrust.
(c) SouthTrust owns all of the issued and outstanding shares
of capital stock of ST-Sub.
Section 4.2 Organization and Related Matters of ST-Sub. (a) ST-Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Alabama. ST-Sub has the corporate power and authority to
own or lease all of its properties and assets and to carry on its business as
now conducted, or as proposed to be conducted pursuant to this Agreement, and
ST-Sub is licensed or qualified to do business in each jurisdiction in which the
nature of the business conducted by ST-Sub, or the character or location of the
properties and assets owned or leased by ST-Sub makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
(or steps necessary to cure such failure) would not have a Material Adverse
Effect on ST- Sub. ST-Sub is duly registered as a bank holding company under the
Bank Holding Bank Act of 1956, as amended. True and correct copies of the
Articles of Incorporation of ST-Sub and the Bylaws of ST-Sub, each as amended to
the date hereof, have been made available to the Bank.
(b) ST-Sub has in effect all federal, state, local and foreign
governmental, regulatory and other authorizations, permits and licenses
necessary for it to own or lease its properties and assets and to carry on its
business as now conducted, the absence of which, either individually or in the
aggregate, would have a Material Adverse Effect on ST-Sub.
(c) ST-Sub owns all of the issued and outstanding shares of
capital stock of ST-Bank.
Section 4.3 Organization and Related Matters of ST-Bank. (a) ST-Bank
is a corporation duly organized, validly existing and in good standing under the
laws of the United States of America. ST-Bank has the
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corporate power and authority to own or lease all of its properties and assets
and to carry on its business as now conducted, or as proposed to be conducted
pursuant to this Agreement, and ST-Bank is, or as of the Effective Time of the
Merger will be, licensed or qualified to do business in each jurisdiction in
which the nature of the business now conducted, or as proposed to be conducted
pursuant to this Agreement, by ST-Bank, or the character or location of the
properties and assets now owned or leased, or as proposed to be owned or leased
pursuant to this Agreement, by ST-Bank makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified (or steps
necessary to cure such failure) would not have a Material Adverse Effect on
ST-Bank. True and correct copies of the Articles of Association and the Bylaws
of ST-Bank, each as amended as of the date hereof, have been delivered to the
Bank.
(b) ST-Bank has, or as of the Effective Time of the Merger
will have, in effect all federal, state, local and foreign governmental,
regulatory and other authorizations, permits and licences necessary for it to
own or lease its properties and assets now owned or leased or to be owned or
leased pursuant to this Agreement and to carry out its business as now
conducted, or as proposed to be conducted pursuant to this Agreement, the
absence of which, either individually or in the aggregate, would have a Material
Adverse Effect on ST-Bank.
Section 4.4 Capitalization. As of December 31, 1998, the authorized
capital stock of SouthTrust consisted of 500,000,000 shares of common stock, par
value $2.50 per share, 168,227,453 shares (which includes the rights associated
with such shares pursuant to that certain Rights Agreement dated January 12,
1999 and effective February 22, 1999 between SouthTrust and ChaseMellon
Shareholder Services, L.L.C.) of which were issued and outstanding (exclusive of
any such shares held in the treasury of SouthTrust as of such date), and
5,000,000 shares of preferred stock, par value $1.00 per share, none of which
are issued and outstanding as of the date hereof. All issued and outstanding
SouthTrust Shares have been duly authorized and validly issued, and all such
shares are fully paid and nonassessable.
Section 4.5 Authority; No Violation. The execution, delivery, and
performance of this Agreement, and the consummation of the transactions
contemplated hereby and in any related agreements, have been or, as of the
Effective Time of the Merger, will have been duly authorized by the Boards of
Directors of SouthTrust, ST-Sub and ST-Bank, and no other corporate proceedings
on the part of SouthTrust, ST-Sub or ST- Bank are or will be necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement, when duly authorized, will be the valid and binding obligation of
SouthTrust, ST-Sub and ST-Bank enforceable against each in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought. Neither the execution,
delivery or performance of this Agreement nor the consummation of the
transactions contemplated hereby will (i) violate any provision of the Restated
Certificate of Incorporation or Bylaws of SouthTrust, or the Articles of
Incorporation or Bylaws of ST-Sub, or the Articles of Association or Bylaws of
ST-Bank or, (ii) to SouthTrust's knowledge and assuming that any necessary
Consents, including, but not limited to those of the Regulatory Authorities,
referred to herein are duly obtained, (A) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the properties or assets of SouthTrust, ST-Sub or ST-Bank under any of the
terms, conditions or provisions of any material note, bond, mortgage, indenture,
deed of trust, license, permit, lease, agreement or other instrument or
obligation to which SouthTrust, ST-Sub or ST-Bank is a party, or by which
SouthTrust, ST-Sub or ST-Bank or any of their respective properties or assets
may be bound or affected, (B) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to
SouthTrust, ST-Sub or ST-Bank or any of their respective material properties or
assets, except for (X) such conflicts, breaches or defaults as are set forth in
DISCLOSURE SCHEDULE 4.5; and (Y) with respect to (B) above, such as individually
or in the aggregate will not have a Material Adverse Effect on SouthTrust.
Section 4.6 Financial Statements. (a) SouthTrust has made available to
the Bank copies of the consolidated financial statements of SouthTrust as of and
for the two (2) fiscal years ended immediately prior to the date of this
Agreement, and as of and for the periods ended after the most recent fiscal year
and prior to the date of this Agreement. SouthTrust will make available to the
Bank, as soon as practicable following the preparation of additional
consolidated financial statements for each subsequent fiscal period or year of
SouthTrust, the
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consolidated financial statements of SouthTrust as of and for such subsequent
fiscal period or year (such consolidated financial statements, unless otherwise
indicated, being hereinafter referred to collectively as the "Financial
Statements of SouthTrust").
(b) Each of the Financial Statements of SouthTrust (including
the related notes) have been or will be prepared in all material respects in
accordance with generally accepted accounting principles, which principles have
been or will be consistently applied during the periods involved, except as
otherwise noted therein, and the books and records of SouthTrust have been, are
being, and will be maintained in all material respects in accordance with
applicable legal and accounting requirements and reflect only the actual
transactions. Each of the Financial Statements of SouthTrust (including the
related notes) fairly presents or will fairly present the consolidated financial
position of SouthTrust as of the respective dates thereof and fairly presents or
will fairly present the results of operations of SouthTrust for the respective
periods therein set forth.
(c) Since December 31, 1998, SouthTrust has not incurred any
obligation or liability (contingent or otherwise) that has or might reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on SouthTrust, except obligations and liabilities (i) which are accrued or
reserved against in the Financial Statements of SouthTrust or reflected in the
notes thereto, or (ii) which were incurred after December 31, 1998 in the
ordinary course of business consistent with past practices. Since December 31,
1998, and except for the matters described in (i) and (ii) above, SouthTrust has
not incurred or paid any obligation or liability which would have a Material
Adverse Effect on SouthTrust.
Section 4.7 Absence of Certain Changes or Events. Since December 31,
1998, no fact or condition has occurred which would give rise to a Material
Adverse Effect on SouthTrust, and to the knowledge of SouthTrust, no fact or
condition exists which might reasonably be expected to cause such a Material
Adverse Effect on SouthTrust in the future.
Section 4.8 Legal Proceedings, Etc. Except as set forth on DISCLOSURE
SCHEDULE 4.8 hereto, or as disclosed in any registration statement filed by
SouthTrust with the SEC (as defined in Section 12.2 of this Agreement) and made
available to the Bank hereunder, neither SouthTrust nor any of its affiliates is
a party to any, and there are no pending, or, to the knowledge of SouthTrust,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions, causes of action or governmental investigations of any nature against
SouthTrust challenging the validity or propriety of the transactions
contemplated by this Agreement or which would be required to be reported by
SouthTrust pursuant to Item 103 of Regulation S-K promulgated by the SEC.
Section 4.9 Insurance. SouthTrust has in effect insurance coverage
with insurers which, in respect of amounts, premiums, types and risks insured,
constitutes reasonably adequate coverage against all risks customarily insured
against by institutions comparable in size and operation to SouthTrust.
Section 4.10 Consents and Approvals. Except for (i) the Consents of the
Regulatory Authorities; (ii) the approval of this Agreement by the respective
shareholders of ST-Bank and the Bank; (iii) the issuance of a Certificate of
Merger by the OCC; or (iv) as disclosed in DISCLOSURE SCHEDULE 4.10, no Consents
of any person are necessary in connection with the execution and delivery by
SouthTrust or, to the knowledge of SouthTrust, by ST- Sub or ST-Bank of this
Agreement, and the consummation of the Merger and the other transactions
contemplated hereby.
Section 4.11 Accounting, Tax, Regulatory Matters. SouthTrust has not
agreed to take any action, has no knowledge of any fact and has not agreed to
any circumstance that would (i) prevent the transactions contemplated hereby,
including the Merger, from qualifying as a reorganization within the meaning of
Section 368 of the Code, or (ii) materially impede or delay receipt of any
Consent from any Regulatory Authority referred to in this Agreement.
Section 4.12 Proxy Materials. None of the information relating to
SouthTrust or any of its subsidiaries to be included or incorporated by
reference in (i) the Proxy Statement, (ii) the Registration Statement, (iii) if
the Bank elects, pursuant to Section 6.2 of this Agreement, to require the
SouthTrust Shares to be issued pursuant to the exemption from the registration
requirements of the Act afforded by Section 4(2) of the Act, the Post-Effective
Registration Statement or (iv) any other documents or registration statements to
be filed with any Regulatory Authority in connection with the transactions
contemplated by this Agreement will, at the respective times such documents or
other registration statements are filed with any Regulatory Authority and, in
the case of the
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Registration Statement or the Post-Effective Registration Statement, if
applicable, when it becomes effective and, with respect to the Proxy Statement,
when mailed, be false or misleading with respect to any material fact, or admits
to state any material fact necessary in order to make statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, be false or misleading with respect to any material fact or
omit to state any material fact necessary to correct any statement in any early
communication with respect to the solicitation of any proxy, if required. The
legal responsibility for the contents of the information supplied by SouthTrust
and its subsidiaries relating to SouthTrust and its subsidiaries which is either
included or incorporated by reference in the Proxy Statement, the Registration
Statement, the Post-Effective Registration Statement, if applicable, or any
other document or registration statement filed with any Regulatory Authority
shall be and remain with SouthTrust.
Section 4.13 No Broker's or Finder's Fees. SouthTrust nor any of its
subsidiaries, affiliates or employees has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with this Agreement or the consummation of any of the transactions
contemplated herein.
Section 4.14 Untrue Statements and Omissions. No representation or
warranty contained in Article 4 of this Agreement or in the Disclosure Schedules
of SouthTrust contains any untrue statement of a material fact or omits to state
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.15 SEC Filings. SouthTrust has filed all forms, reports and
documents required to be filed by SouthTrust with the SEC since December 31,
1995, other than registration statements on Form S-4 and S-8 (collectively, the
"SouthTrust SEC Reports"). The SouthTrust SEC Reports (i) at the time they were
filed, complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, as the case may be, (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such SouthTrust SEC Reports or
necessary in order to make the statements in such SouthTrust SEC Reports, in
light of the circumstances under which they were made, not misleading.
Section 4.16 Compliance with Laws. Each of SouthTrust, ST-Sub and
ST-Bank has conducted its business and owned its assets in accordance with all
applicable federal, foreign, state and local laws, regulations and orders, and
is in compliance with such laws, regulations and orders, except for such
violations or non-compliance, which when taken together as a whole, will not
have a Material Adverse Effect on SouthTrust. Except as disclosed in DISCLOSURE
SCHEDULE 4.16, none of SouthTrust, ST-Sub or ST-Bank:
(a) is in violation of any laws, regulations, rules, orders or
permits applicable to its business or the employees or agents or representatives
conducting its business, except for violations which individually or in the
aggregate do not have and will not have a Material Adverse Effect on SouthTrust;
and
(b) has received a notification or communication from any
agency or department of federal, state or local government or the Regulatory
Authorities or the staff thereof (i) asserting that SouthTrust, ST- Sub or
ST-Bank is not in compliance with any laws or orders which such governmental
authority or Regulatory Authority enforces, where such noncompliance is
reasonably likely to have a Material Adverse Effect on SouthTrust, (ii)
threatening to revoke any permit, the revocation of which is reasonably likely
to have a Material Adverse Effect on SouthTrust, (iii) requiring SouthTrust,
ST-Sub or ST-Bank to enter into any cease and desist order, formal agreement,
commitment or memorandum of understanding, or to adopt any resolutions or
similar undertakings, or (iv) directing, restricting or limiting, or purporting
to direct, restrict or limit in any manner, the operations of SouthTrust, ST-Sub
or ST-Bank, including, without limitation, any restrictions on the payment of
dividends.
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ARTICLE 5
COVENANTS AND AGREEMENTS OF THE BANK
Section 5.1 Conduct of the Business of Bank. (a) During the period
from the date of this Agreement to the Effective Time of the Merger, the Bank
shall (i) conduct its business in the usual, regular and ordinary course
consistent with past practice and prudent banking and business principles, (ii)
use its best efforts to maintain and preserve intact its business organization,
employees, goodwill with customers and advantageous business relationships and
retain the services of its officers and key employees, and (iii) except as
required by law or regulation, take no action which would adversely affect or
delay the ability of the Bank, SouthTrust, or ST-Bank to obtain any Consent from
any Regulatory Authorities or other approvals required for the consummation of
the transactions contemplated hereby or to perform their covenants and
agreements under this Agreement.
(b) During the period from the date of this Agreement to the
Effective Time of the Merger, except as required by law or regulation, the Bank
shall not, without the prior written consent of SouthTrust:
(i) change, delete or add any provision of or to the
Articles of Association or Bylaws of the Bank;
(ii) change the number of shares of the authorized, issued or
outstanding capital stock of the Bank, including any
issuance, purchase, redemption, split, combination or
reclassification, thereof, or issue or grant any option,
warrant, call, commitment, subscription, right or
agreement to purchase relating to the authorized or
issued capital stock of the Bank, declare, set aside
or pay any dividend or other distribution with respect
to the outstanding capital stock of the Bank;
(iii) incur any material liabilities or material obligations
(other than deposit liabilities and short-term
borrowings in the ordinary course of business), whether
directly or by way of guaranty, including any obligation
for borrowed money, or whether evidenced by any note,
bond, debenture, or similar instrument, except in the
ordinary course of business consistent with past
practice;
(iv) make any capital expenditures individually in excess
of $25,000, or in the aggregate in excess of $50,000
other than pursuant to binding commitments existing
on existing on December 31, 1998 and disclosed in a
Disclosure Schedule delivered pursuant to Article 3
of this Agreement or in DISCLOSURE SCHEDULE
5.1(B)(IV) and other than expenditures necessary to
maintain existing assets in good repair, provided the
Bank will notify SouthTrust of such expenditures;
(v) sell, transfer, convey or otherwise dispose of any
real property (including "other real estate owned")
or interest therein or any tangible or intangible
personal property having a book value in excess of or
in exchange for consideration in excess of $25,000
for each such parcel or interest;
(vi) pay any bonuses to any executive officer or director
except pursuant to the terms of an enforceable
agreement as reflected in annexed DISCLOSURE SCHEDULE
5.1(B)(VI); enter into any new, or amend in any
respect any existing employment, consulting,
non-competition or independent contractor agreement
with any person; alter the terms of any existing
incentive bonus or
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commission plan; adopt any new or amend in any material
respect any existing employee benefit or bonus plan, except
as may be required by law or to maintain the tax qualified
status of any such plan; grant any general increase in
compensation to its employees as a class or to its officers
except for non-executive officers in the ordinary course of
business and consistent with past practices and policies or
except in accordance with the terms of an enforceable
written agreement; grant any material increases in fees or
other increases in compensation or in other benefits to any
of its directors; or effect any change in any material
respect in retirement benefits to any class of employees or
officers, except as required by law;
(vii) enter into or extend any agreement, lease or license
relating to real property, tangible or intangible personal
property or any service or other function (including,
without limitation), data processing or bankcard functions
relating to the Bank that involves an aggregate of $25,000;
(viii) increase or decrease the rate of interest paid on time
deposits or on certificates of deposit, except in a manner
and pursuant to policies consistent with the Bank's past
practices;
(ix) purchase or otherwise acquire any investment securities for
its own account having an average remaining life to
maturity greater than five years, or any asset-backed
security, other than those issued or guaranteed by the
Government National Mortgage Association, the Federal
National Mortgage Association or Home Loan Mortgage
Corporation, or any Derivative Contract;
(x) acquire twenty percent (20%) or more of the assets or
equity securities of any person or acquire direct or
indirect control of any person, other than in connection
with (A) any internal reorganization or consolidation
involving the Bank which has been approved in advance in
writing by SouthTrust, (B) foreclosures in the ordinary
course of business, (C) acquisitions of control by a
banking subsidiary in a fiduciary capacity or (D) the
creation of new subsidiaries organized to conduct and
continue activities otherwise permitted by this Agreement;
or
(xi) commence any cause of action or proceeding other than in
accordance with past practice or settle any action, claim,
arbitration, complaint, criminal prosecution, demand
letter, governmental or other examination or investigation,
hearing, inquiry or other proceeding against the Bank for
material money damages or restrictions upon any of their
operations.
Section 5.2 Information to be Provided by the Bank to SouthTrust.
During the period from the date of this Agreement to the Effective Time of the
Merger or the time of termination or abandonment of this Agreement, the Bank
will cause one or more of its designated representatives to confer on a regular
and frequent basis with representatives of SouthTrust and to report the general
status of the ongoing operations of the Bank. The Bank will promptly notify
SouthTrust of any material change in the normal course of business or the
operations or the properties of the Bank, any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) affecting the Bank, the institution or the threat of material
litigation, claims, threats or causes of action involving the Bank, and will
keep SouthTrust fully informed of such events. The Bank will furnish to
SouthTrust, promptly after the preparation and/or receipt by the Bank thereof,
copies of its unaudited
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periodic financial statements, and shall furnish to furnish to SouthTrust
promptly after the preparation and/or receipt by the Bank, copies of all
periodic financial statements of the Bank, if available, and all call reports
with respect to the Bank for the applicable periods then ended, and such
financial statements and call reports shall, upon delivery to SouthTrust, be
treated, for purposes of Section 3.3 hereof, as among the Financial Statements
of the Bank and the Call Reports of the Bank. The Bank will promptly furnish to
SouthTrust the information required to be included in the Registration Statement
or the Post-Effective Registration Statement, if applicable, with respect to its
business and affairs before it is filed with the SEC and again before any
amendments are filed.
Section 5.3 Access to Properties; Personnel and Records. (a) So long as
this Agreement shall remain in effect, the Bank shall permit SouthTrust or its
agents full access, during normal business hours, to the properties of the Bank,
and shall disclose and make available (together with the right to copy) to
SouthTrust and to its internal auditors, loan review officers, attorneys,
accountants and other representatives, all books, papers and records relating to
the assets, stock, properties, operations, obligations and liabilities of the
Bank, including all books of account (including the general ledger), tax
records, minute books of directors' and shareholders' meetings, organizational
documents, bylaws, contracts and agreements, filings with any regulatory agency,
examination reports, correspondence with regulatory or taxing authorities,
documents relating to assets, titles, abstracts, appraisals, consultant's
reports, plans affecting employees, securities transfer records and stockholder
lists, and any other assets, business activities or prospects in which
SouthTrust may have a reasonable interest, and the Bank shall use its reasonable
best efforts to provide SouthTrust and its representatives access to the work
papers of the Bank's accountants. The Bank shall not be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of any customer, would contravene any law, rule,
regulation, order or judgment or would violate any confidentiality agreement;
provided that the Bank shall cooperate with SouthTrust in seeking to obtain
Consents from appropriate parties under whose rights or authority access is
otherwise restricted. In addition, during the period from the date of this
Agreement to the Effective Time of the Merger the Bank shall permit
representatives of SouthTrust and its Affiliates to attend each meeting of the
Board of Directors of the Bank and committees thereof, except that such
representatives may not attend, unless otherwise permitted by the Bank, any
portion of any such meeting during which this Agreement and the transactions
contemplated hereby are discussed. The foregoing rights granted to SouthTrust
shall not, whether or not and regardless of the extent to which the same are
exercised, affect the representations and warranties made in this Agreement by
the Bank.
Section 5.4 Approval of the Bank's Shareholders. (a) The Bank will take
all steps necessary under applicable laws to call, give notice of, convene and
hold a meeting of its shareholders at such time as may be mutually agreed to by
the parties for the purpose of approving this Agreement and the transactions
contemplated hereby and for such other purposes consistent with the complete
performance of this Agreement as may be necessary or desirable. The Board of
Directors of the Bank will recommend to its shareholders the approval of this
Agreement and the transactions contemplated hereby and the Bank will use its
best efforts to obtain the necessary approvals by its shareholders of this
Agreement and the transactions contemplated hereby.
(b) Contemporaneously with and as a condition to the execution
of this Agreement by ST-Bank, ST-Sub and SouthTrust, Messrs. Jerry E. Winters
and William C. Woodby, as the Co-Voting Representatives pursuant to that certain
Voting and Stock Restriction Agreement, dated January 6, 1989, by and among a
number of shareholders of the Bank, shall execute a voting agreement (the
"Voting Agreement") pursuant to which they agree to vote the Bank Shares subject
to the Voting and Stock Restriction Agreement (i) in favor of approving this
Agreement and the transactions contemplated by it and (ii) in favor of any other
proposal which may properly come before the shareholders of the Bank for
consideration which are necessary or desirable to effectuate the consummation of
the transactions contemplated by this Agreement.
Section 5.5 No Other Bids. Except with respect to this Agreement and
the transactions contemplated hereby, neither the Bank nor any "affiliate" (as
defined below) thereof, nor any investment banker, attorney, accountant or other
representative (collectively, "representative") retained by the Bank shall
directly or indirectly initiate, solicit, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer that constitutes, or may
reasonably be expected to lead to, any "takeover proposal" (as defined below) by
any other party. Except to the extent necessary to comply with the fiduciary
duties of the Bank's Board of Directors as advised in writing by counsel to such
Board of Directors, neither the Bank nor any affiliate or representative thereof
shall furnish any non-public information that it is not legally obligated to
furnish or negotiate or enter into any agreement or contract with respect to any
takeover proposal, and shall direct and use its reasonable efforts to cause
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its affiliates or representatives not to engage in any of the foregoing, but the
Bank may communicate information about such a takeover proposal to its
shareholders if and to the extent it is required to do so in order to comply
with its legal obligations as advised in writing by counsel. The Bank shall
promptly notify SouthTrust orally and in writing in the event that it receives
any inquiry or proposal relating to any such transaction. The Bank shall
immediately cease and cause to be terminated as of the date of this Agreement
any existing activities, discussions or negotiations with any other parties
conducted heretofore with respect to any of the foregoing. As used in this
Section 5.5, an "affiliate" of a party means (i) any other party directly or
indirectly controlling, controlled by or under common control with such party,
(ii) any executive officer, director, partner, employer or direct or indirect
beneficial owner of a 10% or greater equity or voting interest in such party, or
(iii) any other party for which a party described in clause (ii) acts in any
such capacity. As used in this Section 5.5, "takeover proposal" shall mean any
proposal for a merger or other business combination involving the Bank or for
the acquisition of a significant equity interest in the Bank or for the
acquisition of a significant portion of the assets or liabilities of the Bank.
Section 5.6 Affiliates. No later than ten (10) days following the
execution of this Agreement, the Bank shall deliver to SouthTrust a letter
identifying all persons who are anticipated to be, at the time this Agreement is
submitted for approval to the shareholders of the Bank, "affiliates" of the Bank
for purposes of Rule 145 under the Securities Act of 1933. In addition, the Bank
shall cause each person named in the letter referred to above to deliver to
SouthTrust not later than thirty (30) days following the execution of this
Agreement a written agreement substantially in the form of EXHIBIT 5.6 providing
that such person will not sell, pledge, transfer, or otherwise dispose of the
Bank Shares held by such person, except as contemplated by such agreement or by
this Agreement, and will not sell, pledge, transfer, or otherwise dispose of the
SouthTrust Shares to be received by such person upon consummation of the Merger
except in compliance with applicable provisions of the Securities Act of 1933,
and the rules and regulations promulgated thereunder and until such time as the
financial results covering at least thirty (30) days of combined operations of
SouthTrust and the Bank have been published within the meaning of Section 201.01
of the SEC's Codification of Financial Reporting Policies. If the Merger will
qualify for pooling-of-interests accounting treatment, the SouthTrust Shares
issued to such affiliates of the Bank in exchange for the Bank Shares shall not
be transferable until such time as the financial results covering at least
thirty (30) days of combined operations of SouthTrust and the Bank have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies regardless of whether each such person has provided
the written agreement referred to in this Section 5.6. SouthTrust shall not be
required to maintain the effectiveness of the Registration Statement under the
Securities Act of 1933 for the purposes of resale of SouthTrust Shares by such
persons.
Section 5.7 Maintenance of Properties. The Bank will maintain its
properties and assets in satisfactory condition and repair for the purposes for
which they are intended, ordinary wear and tear excepted.
Section 5.8 Environmental Audits. At the election of SouthTrust, the
Bank will, subject to Section 12.5 of this Agreement, at its own expense, with
respect to each parcel of real property that the Bank owns, leases or subleases,
procure and deliver to SouthTrust, at least thirty (30) days prior to the
Effective Time of the Merger, an environmental audit, which audit shall be
reasonably acceptable to and shall be conducted by a firm reasonably acceptable
to SouthTrust.
Section 5.9 Title Insurance. At the election of SouthTrust, the Bank
will, subject to Section 12.5 of this Agreement, at its own expense, with
respect to each parcel of real property that the Bank owns, leases or subleases,
procure and deliver to SouthTrust, at least thirty (30) days prior to the
Effective Time of the Merger, owner's title insurance issued in such amounts and
by such insurance company reasonably acceptable to SouthTrust, which policy
shall be free of all material exceptions to SouthTrust's reasonable
satisfaction.
Section 5.10 Surveys. At the election of SouthTrust, with respect to
each parcel of real property as to which a title insurance policy is to be
procured pursuant to Section 5.9, the Bank, will, subject to Section 12.5 of
this Agreement, at its own expense, procure and deliver to SouthTrust at least
thirty (30) days prior to the Effective Time of the Merger, a survey of such
real property, which survey shall be reasonably acceptable to and shall be
prepared by a licensed surveyor reasonably acceptable to SouthTrust, disclosing
the locations of all improvements, easements, sidewalks, roadways, utility lines
and other matters customarily shown on such surveys and showing access
affirmatively to public streets and roads and providing the legal description of
the property in a form suitable for recording and insuring the title thereof
(the "Survey"). The Survey shall not disclose any survey defect or
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encroachment from or onto such real property that has not been cured or insured
over prior to the Effective Time of the Merger.
Section 5.11 Consents to Assign. With respect to all material
contracts, agreements, licences and other documents relating to the business of
the Bank as it is currently operated which cannot be assigned to ST- Bank by
operation of law by the Merger, the Bank will use its best efforts to obtain all
Consents necessary or appropriate to transfer and assign all rights, title, and
interest of the Bank in such contracts, agreements, licences and other documents
to ST-Bank. With respect to the leases disclosed in DISCLOSURE SCHEDULE 3.14(B),
the Bank will obtain all Consents necessary or appropriate to transfer and
assign all right, title and interest of the Bank to ST-Bank and to permit the
use and operation of the leased premises by ST-Bank.
Section 5.12 Exemption Under Anti-Takeover Statutes. Prior to the
Effective Time of the Merger, the Bank will use its best efforts to take all
steps required to exempt the transactions contemplated by this Agreement from
any applicable state anti-takeover law.
Section 5.13 Conforming Accounting and Reserve Policies. At the request
of SouthTrust, the Bank shall immediately prior to Closing establish and take
such reserves and accruals as SouthTrust reasonably shall request to conform the
Bank's loan, accrual, reserve and other accounting policies to the policies of
ST-Bank, provided however, such requested conforming adjustment shall not be
taken into account as having a Material Adverse Effect on the Bank.
Section 5.14 Compliance Matters. Prior to the Effective Time of the
Merger, the Bank shall take, or cause to be taken, all steps reasonably
requested by SouthTrust to cure any deficiencies in regulatory compliance by the
Bank, including compliance with Regulations Z and CC of the FRB; provided that
neither SouthTrust nor ST-Bank shall be responsible for discovering or have any
obligation to disclose the existence of such defects to the Bank nor shall
SouthTrust or ST-Bank have any liability resulting from such deficiencies or
attempts to cure them.
ARTICLE 6
COVENANTS AND AGREEMENTS OF
SOUTHTRUST, ST-SUB AND ST-BANK
Section 6.1 Information to be Provided to the Bank. During the period
from the date of this Agreement to the Effective Time of the Merger or the time
of termination or abandonment hereunder, SouthTrust will cause one or more of
its designated representatives to confer on a regular and frequent basis with
the Bank and to report with respect to the general status and the ongoing
operations of SouthTrust.
Section 6.2 Registration Statement. As soon as practicable after the
execution of this Agreement, SouthTrust shall prepare and file the Registration
Statement with the SEC. SouthTrust shall take all appropriate steps and will use
its best efforts to cause the Registration Statement to be declared effective
under the Act with the SEC prior to the Effective Time of the Merger. The
Registration Statement shall permit the non-affiliate shareholders of the Bank
who receive SouthTrust Shares pursuant to the Merger to receive unlegended,
freely transferable securities; affiliate shareholders of the Bank who receive
SouthTrust Shares shall be subject to restrictions on their transfer as set
forth by Rule 145 of the rules and regulations promulgated by the SEC and as set
forth in Section 5.6 of this Agreement. Further, SouthTrust shall cause the
SouthTrust Shares to be issued pursuant to the Merger to be listed on the
NASDAQ/NMS and any other market or exchange on which the SouthTrust Shares are
traded at and subsequent to the Effective Time of the Merger, so that the same
shall be eligible for sale through the facilities of the NASDAQ/NMS and any
other such market or exchange. Notwithstanding the above, the Bank may, within
twenty (20) business days after the date of this Agreement, elect to have the
SouthTrust Shares issued to the shareholders of the Bank pursuant to a
transaction which is exempt from the registration requirements of the Act under
Section 4(2) of the Act. In the event the Bank makes this election timely and
provided that, in the opinion of counsel for SouthTrust, the transaction may be
effected by use of the Post-Effective Registration Statement, SouthTrust, within
fifteen (15) business days after the Effective Time of the Merger, shall file
the Post- Effective Registration Statement with the SEC. In such event,
SouthTrust shall provide a copy of the Post-Effective Registration Statement, in
its then current form, to the Bank within the five (5) business day period prior
to the Closing Date, use its best efforts to cause the Post-Effective
Registration Statement to be declared effective under
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the Act within forty-five (45) days of the Effective Time of the Merger and use
its best efforts to maintain the effectiveness of the Post-Effective
Registration Statement for a period of two (2) years following the Effective
Time of the Merger. The Registration Statement, or the Post-Effective
Registration Statement, if applicable, shall, at the time it becomes effective,
in all material respects conform to the requirements of the Act and the general
rules and regulations of the SEC promulgated under the Act. SouthTrust shall
take all actions required to qualify or obtain exemptions from such
qualification for the SouthTrust Shares to be issued in connection with the
transactions contemplated by this Agreement under applicable state blue sky
securities laws, as appropriate.
Section 6.3 Reservation of Shares. SouthTrust, on behalf of ST-Sub and
ST-Bank, shall reserve for issuance such number of SouthTrust Shares as shall be
necessary to pay the consideration contemplated in this Agreement. If at any
time the aggregate number of SouthTrust Shares remaining unissued (or in
treasury) shall not be sufficient to meet such obligation, SouthTrust shall take
all appropriate actions to increase the amount of its authorized common stock.
Section 6.4 Consideration. SouthTrust shall issue the SouthTrust Shares
and shall pay or cause to be paid all cash payments as and when the same shall
be required to be issued and paid pursuant to this Agreement.
ARTICLE 7
ADDITIONAL COVENANTS AND AGREEMENTS
Section 7.1 Best Efforts; Cooperation. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its best
efforts promptly to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations, or otherwise, including attempting to obtain all necessary
Consents, to consummate and make effective, as soon as practicable, the
transactions contemplated by this Agreement.
Section 7.2 Regulatory Matters. (a) Promptly following the execution
and delivery of this Agreement, SouthTrust and the Bank shall cause to be
prepared and filed all required applications and filings with the Regulatory
Authorities which are necessary or contemplated for the obtaining of the
Consents of the Regulatory Authorities or consummation of the Merger. Such
applications and filings shall be in such form as may be prescribed by the
respective government agencies and shall contain such information as they may
require. The parties hereto will cooperate with each other and use their best
efforts to prepare and execute all necessary documentation, to effect all
necessary or contemplated filings and to obtain all necessary or contemplated
permits, consents, approvals, rulings and authorizations of government agencies
and third parties which are necessary or contemplated to consummate the
transactions contemplated by this Agreement, including, without limitation,
those required or contemplated from the Regulatory Authorities, and the
shareholders of the Bank. Each of the parties shall have the right to review and
approve in advance, which approval shall not be unreasonably withheld, any
filing made with, or written material submitted to, any government agency in
connection with the transactions contemplated by this Agreement.
(b) Each party hereto will furnish the other party with all
information concerning itself, its subsidiaries, directors, trustees, officers,
shareholders and depositors, as applicable, and such other matters as may be
necessary or advisable in connection with any statement or application made by
or on behalf of any such party to any governmental body in connection with the
transactions, applications or filings contemplated by this Agreement. Upon
request, the parties hereto will promptly furnish each other with copies of
written communications received by them or their respective subsidiaries from,
or delivered by any of the foregoing to, any governmental body in respect of the
transactions contemplated hereby.
Section 7.3 Employee Benefit Matters. (a) The parties acknowledge that
nothing in this Agreement shall be construed as constituting an employment
agreement between SouthTrust or any of its affiliates and any officer or
employee of the Bank or obligation on the part of SouthTrust or any of its
affiliates to employ any such officers or employees.
(b) The parties agree that appropriate steps shall be taken to
terminate all employee benefit plans of the Bank as of the Effective Time of the
Merger or as promptly as practicable thereafter. Following the termination of
all such plans, and except as otherwise provided in Section 7.3(3) below,
SouthTrust agrees that
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the officers and employees of the Bank and who the Surviving Corporation employs
shall be eligible to participate in SouthTrust's employee benefit plans,
including welfare and fringe benefit plans on the same basis and subject to the
same conditions as are applicable to any newly-hired employee of SouthTrust;
provided, however, that:
(i) with respect to each SouthTrust group health plan (within
the meaning of Section 5000(b)(1) of the Code), SouthTrust
shall credit each such employee for eligible expenses
incurred by such employee and his or her dependents (if
applicable) under the corresponding Bank's group medical
insurance plan during the current calendar year for
purposes of satisfying the health plan deductible
provisions under SouthTrust's plan for such current year
and shall not apply any waiting period (including, but not
limited to, waiting periods for pre-existing conditions) of
a duration greater than the duration of the corresponding
waiting period, if any, under the Bank group health plan as
in effect immediately prior to the Effective Time; and
(ii) credit for each such employee's past service with the Bank
prior to the Effective Time of the Merger ("Past Service
Credit") shall be given by SouthTrust to employees for
purposes of:
7.3.2.2.1 determining vacation and sick leave
benefits and accruals, in accordance with the established
policies of SouthTrust;
7.3.2.2.2 establishing eligibility for
participation in and vesting under SouthTrust's employee
benefit plans (including welfare and fringe benefit plans),
and for purposes of determining the scheduling of vacations
and other determinations which are made based on length of
service, provided, however, notwithstanding anything
contained in this Agreement to the contrary, Past Service
Credit shall not be given to any such employee for purposes
of establishing eligibility for participation in the 1990
Discounted Stock Plan of SouthTrust;
7.3.2.2.3 determining satisfaction of applicable
waiting periods under said plans for pre-existing
conditions.
(c) The parties further agree that any existing 401(k) plans
of the Bank will either be merged into the SouthTrust Corporation Employee's
Profit Sharing Plan (the "STPS Plan") effective as of January 1 of the year in
which the Effective Time of the Merger occurs or, if so elected by SouthTrust,
terminated as of a date prior to the Effective Time of the Merger. The
determination as to whether such 401(k) plans shall be terminated or merged into
the STPS Plan shall be made by SouthTrust. From and after the January 1
following the Effective Time of the Merger, for purposes of determining
eligibility to participate in, and vesting in accrued benefits under, the STPS
Plan and the SouthTrust Corporation Revised Retirement Income Plan (the "ST
Retirement Plan") employment by the Bank shall be credited as if it were
employment by SouthTrust, but such service shall not be credited for purposes of
determining benefit accrual under the ST Retirement Plan.
Section 7.4 Indemnification. (a) The Bank agrees to indemnify, defend
and hold harmless SouthTrust and its subsidiaries and each of their respective
present and former officers, directors, employees and agents, from and against
all losses, expenses, claims, damages or liabilities to which any of them may
become subject under applicable laws (including, but not limited to, the
Securities Act of 1933 or the Securities Exchange Act of 1934), and will
reimburse each of them for any legal, accounting or other expenses reasonably
incurred in connection with investigating or defending any such actions, whether
or not resulting in liability, insofar as such losses, expenses, claims, damages
or liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of material fact contained in the Registration Statement, the
Proxy Statement or any application for the
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approval of the transactions contemplated by this Agreement which is either
provided or supplied by the Bank or which relates to the Bank, its financial
position, business, results of operation, financial performance or prospects, or
any of its officers, directors, employees, agents or representatives, including,
but not limited to, attorneys, accounts and brokers) filed with any Regulatory
Authority or arise out of or are based upon the omission or alleged omission to
state therein a material fact necessary to make the Statements therein, in light
of the circumstances under which they were made not misleading.
(b) After the Effective Time of the Merger, directors,
officers and employees of the Bank shall have indemnification rights having
prospective application only. These prospective indemnification rights shall
consist of such rights to which directors, officers and employees of SouthTrust
and its subsidiaries would be entitled under the Restated Certificate of
Incorporation and Bylaws of SouthTrust or the particular subsidiary for which
they are serving as officers, directors or employees and under such directors'
and officers' liability insurance policy as SouthTrust may then make available
to officers, directors and employees of SouthTrust and its subsidiaries.
Section 7.5 Confidentiality of Information. All information furnished
by the parties hereto pursuant to this Agreement shall be treated as the sole
property of the party providing such information until the consummation of the
Merger contemplated hereby and, if such transaction shall not occur, the party
receiving the information shall return to the party which furnished such
information, all documents or other materials containing, reflecting or
referring to such information, shall use its best efforts to keep confidential
all such information, and shall not directly or indirectly use such information
for any competitive or other commercial purposes. The obligation to keep such
information confidential shall continue for two (2) years from the date the
proposed transactions are abandoned but shall not apply to any information which
(A) the party receiving the information was already in possession of prior to
disclosure thereof by the party furnishing the information, (B) was then
available to the public, or (C) became available to the public through no fault
of the party receiving the information; or disclosures pursuant to a legal
requirement or in accordance with an order of a court of competent jurisdiction
or regulatory agency; provided that the party which is the subject of any such
legal requirement or order shall use its best efforts to give the other party at
least ten (10) business days prior notice of any such required disclosure. Each
party hereto acknowledges and agrees that a breach of any of their respective
obligations under this Section 7.5 would cause the other irreparable harm for
which there is no adequate remedy at law, and that, accordingly, each is
entitled to injunctive and other equitable relief for the enforcement thereof in
addition to damages or any other relief available at law.
Section 7.6 Publicity. Except as otherwise required by law or the
rules of NASDAQ/NMS, so long as this Agreement is in effect, neither ST-Bank nor
the Bank shall, or shall permit any of their respective subsidiaries or
Affiliates to, issue or cause the publication of any press release or other
public announcement with respect to, or otherwise make any public statement
concerning, the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld. In the
event such press release, public statement or public announcement is required by
law, the announcing party will give the other party advance notice of such and
provide a copy of the proposed release, statement or announcement to the other
party.
ARTICLE 8
MUTUAL CONDITIONS TO CLOSING
The obligations of SouthTrust, ST-Sub, and ST-Bank on the one hand, and
the Bank, on the other hand, to consummate the transactions provided for herein
shall be subject to the satisfaction of the following conditions, unless waived
as hereinafter provided for:
Section 8.1 Shareholder Approval. The Merger shall have been approved
by the requisite vote of the shareholders of the Bank and the sole shareholder
of ST-Bank.
Section 8.2 Regulatory Approvals. All necessary Consents of the
Regulatory Authorities shall have been obtained and all notice and waiting
periods required by law to pass after receipt of such Consents shall have
passed, and all conditions to consummation of the Merger set forth in such
Consents shall have been satisfied.
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Section 8.3 Legal Proceedings. No court or governmental or regulatory
authority of any competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, order or similar restriction (whether temporary,
preliminary or permanent) or taken any other action which prohibits or makes
illegal the consummation of the transactions contemplated by this Agreement.
Section 8.4 Registration Statement and Listing. The Registration
Statement shall have been declared effective by the SEC, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated or
threatened by the SEC or any other regulatory authority. SouthTrust shall have
received all federal and state securities laws, or "Blue Sky" permits or other
authorizations or confirmations as to the availability of exemptions from
registration requirements, as may be necessary to issue the SouthTrust Shares
pursuant to the terms of this Agreement.
ARTICLE 9
CONDITIONS TO THE OBLIGATIONS OF
SOUTHTRUST, ST-SUB AND ST-BANK
The obligations of SouthTrust, ST-Sub and ST-Bank to consummate the
Merger are subject to the fulfillment of each of the following conditions,
unless waived as hereinafter provided for:
Section 9.1 Representations and Warranties. The representations and
warranties of the Bank set forth in this Agreement and in any certificate or
document delivered pursuant hereto shall be true and correct as of the date of
this Agreement and as of all times up to and including the Effective Time of the
Merger (as though made on and as of the Effective Time of the Merger except to
the extent such representations and warranties are by their express provisions
made as of a specified date and except for changes therein contemplated by this
Agreement).
Section 9.2 Performance of Obligations. The Bank shall have performed
all covenants, obligations and agreements required to be performed by it under
this Agreement prior to the Effective Time of the Merger.
Section 9.3 Certificate Representing Satisfaction of Conditions. The
Bank shall have delivered to SouthTrust a certificate of the Chief Executive
Officer of the Bank dated as of the Closing Date as to the satisfaction of the
matters described in Sections 9.1 and 9.2 hereof, and such certificate shall be
deemed to constitute additional representations, warranties, covenants, and
agreements of the Bank under Articles 3 and 5 of this Agreement.
Section 9.4 Absence of Adverse Facts. There shall have been no
determination by SouthTrust that any fact, event or condition exists or has
occurred that, in the reasonable judgment of SouthTrust, (a) would have a
Material Adverse Effect on, or which may be foreseen to have a Material Adverse
Effect on, the Bank or the consummation of the transactions contemplated by this
Agreement, (b) would be of such significance with respect to the business or
economic benefits expected to be obtained by SouthTrust pursuant to this
Agreement as to render inadvisable the consummation of the transactions pursuant
to this Agreement or (c) would be materially adverse to the interests of
SouthTrust on a consolidated basis or (d) would render the Merger or the other
transactions contemplated by this Agreement impractical because of any state of
war, national emergency, banking moratorium or general suspension of trading on
NASDAQ/NMS, the New York Stock Exchange, Inc. or other national securities
exchange.
Section 9.5 Opinion of Counsel. SouthTrust shall have received an
opinion of counsel from Hausler, Farra & Kennedy or other counsel to the Bank
acceptable to SouthTrust in substantially the form set forth in EXHIBIT 9.5
hereof.
Section 9.6 Consents Under Agreements. The Bank shall have obtained the
consent or approval of each person (other than the Consents of the Regulatory
Authorities) whose consent or approval shall be required in order to permit the
succession by the Surviving Corporation to any obligation, right or interest of
the Bank under any loan or credit agreement, note, mortgage, indenture, lease
(other than any lease or sublease described in and set forth on DISCLOSURE
SCHEDULE 3.14(2)), license, or other agreement or instrument, except those for
which failure to obtain such consents and approvals would not in the opinion of
SouthTrust, individually or in the aggregate, have a
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Material Adverse Effect on the Surviving Corporation or upon the consummation of
the transactions contemplated by this Agreement.
Section 9.7 Consents Relating to Leased Real Property. The Bank shall
have delivered evidence that each Consent described in Section 3.14(4) shall
have been obtained by the Bank.
Section 9.8 Material Condition. There shall not be any action taken,
or any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger by any Regulatory Authority which, in connection with
the grant of any Consent by any Regulatory Authority, imposes, in the judgment
of SouthTrust, any material adverse requirement upon SouthTrust or its
subsidiaries, including, without limitation, any requirement that SouthTrust
sell or dispose of any significant amount of the assets of or the Bank or any
other banking or other Subsidiary of SouthTrust, provided that, except for any
such requirement relating to the above-described sale or disposition of any
significant assets of the Bank or any banking or other subsidiary of SouthTrust,
no such term or condition imposed by any Regulatory Authority in connection with
the grant of any Consent by any Regulatory Authority shall be deemed to be a
material adverse requirement unless it materially differs from terms and
conditions customarily imposed by any such entity in connection with the
acquisition of Bank under similar circumstances.
Section 9.9 Employment Agreement with William Woodby. Mr. William
Woodby shall have executed and delivered to SouthTrust an employment agreement
in substantially the form set forth in EXHIBIT 9.9.
Section 9.10 Outstanding Shares of the Bank. The total number of the
Bank Shares outstanding as of the Effective Time of the Merger and the total
number of Bank Shares covered by any option, warrant, commitment, or other right
or instrument to purchase or acquire any Bank Shares that are outstanding as of
the Effective Time of the Merger, including any securities or rights convertible
into or exchangeable for Bank Shares, shall not exceed 43,345 shares in the
aggregate.
Section 9.11 Dissenters. The holders of not more than five percent (5%)
of the outstanding Bank Shares shall have elected to exercise their right to
dissent from the Merger and demand payment in cash for the fair or appraised
value of their shares.
Section 9.12 Pooling. SouthTrust, in the exercise of its discretion,
and after taking into account the holders of the outstanding Bank Shares who
shall have elected to exercise their right to dissent from the Merger and demand
payment in cash for the fair or appraised value of their shares, shall not have
determined that the transactions contemplated by this Agreement fail to qualify
for pooling of interests accounting treatment.
Section 9.13 Certification of Claims. The Bank shall have delivered a
certificate to SouthTrust that the Bank is not aware of any pending or
threatened claim under the directors and officers insurance policy or the
fidelity bond coverage of the Bank.
Section 9.14 Litigation. There shall be no actual or threatened causes
of action, investigations or proceedings (i) challenging the validity or
legality of this Agreement or the consummation of the transactions contemplated
by this Agreement, or (ii) seeking damages in connection with the transactions
contemplated by this Agreement, or (iii) seeking to restrain or invalidate the
transactions contemplated by this Agreement, which, in the case of (i) through
(iii), and in the judgment of SouthTrust, based upon advice of counsel, would
have a Material Adverse Effect with respect to the interests of SouthTrust.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF THE BANK
The obligation of the Bank to consummate the Merger as contemplated
herein is subject to each of the following conditions, unless waived as
hereinafter provided for:
Section 10.1 Representations and Warranties. The representations and
warranties of SouthTrust, ST-Sub and ST-Bank contained in this Agreement or in
any certificate or document delivered pursuant to the provisions hereof shall be
true and correct as of the date of this Agreement and as of the Effective Time
of the Merger (as though made on and as of the Effective Time of the Merger,
except to the extent such representations
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and warranties are by their express provisions made as of a specified date and
except for changes therein contemplated by this Agreement.
Section 10.2 Performance of Obligations. SouthTrust, ST-Sub and ST-Bank
shall have performed all covenants, obligations and agreements required to be
performed by them and under this Agreement prior to the Effective Time of the
Merger.
Section 10.3 Certificate Representing Satisfaction of Conditions.
SouthTrust, ST-Sub and ST- Bank shall have delivered to the Bank a certificate
dated as of the Effective Time of the Merger as to the satisfaction of the
matters described in Sections 10.1 and 10.2 hereof, and such certificate shall
be deemed to constitute additional representations, warranties, covenants, and
agreements of SouthTrust, ST-Sub and ST-Bank under Articles 4 and 6 of this
Agreement.
Section 10.4 Absence of Adverse Facts. There shall have been no
determination by the Bank that any fact, event or condition exists or has
occurred that, in the reasonable judgment of the Bank, (a) would have a Material
Adverse Effect on, or which may be foreseen to have a Material Adverse Effect on
SouthTrust on a consolidated basis or the consummation of the transactions
contemplated by this Agreement, or (b) would render the Merger or the other
transactions contemplated by this Agreement impractical because of any state of
war, national emergency, banking moratorium, or a general suspension of trading
on NASDAQ/NMS, the New York Stock Exchange, Inc. or other national securities
exchange.
Section 10.5 Consents Under Agreements. SouthTrust, ST-Sub and ST-Bank
shall have obtained the consent or approval of each person (other than the
Consents of Regulatory Authorities) whose consent or approval shall be required
in connection with the transactions contemplated hereby under any loan or credit
agreement, note, mortgage, indenture, lease, license or other agreement or
instrument, except those for which failure to obtain such consents and approvals
would not, in the judgment of the Bank, individually or in the aggregate, have a
Material Adverse Effect upon the consummation of the transactions contemplated
hereby.
Section 10.6 Opinion of Counsel. The Bank shall have received the
opinion of Bradley Arant Rose & White LLP, counsel to SouthTrust, dated the
Effective Time of the Merger in substantially the form set forth in EXHIBIT 10.6
hereof.
Section 10.7 SouthTrust Shares. The SouthTrust Shares to be issued in
connection herewith shall be duly authorized and validly issued and, fully paid
and nonassessable, issued free of preemptive rights and free and clear of all
liens and encumbrances created by or through SouthTrust.
Section 10.8 Tax Opinion. The Bank shall have received an opinion of
Bradley Arant Rose & White LLP on or before the Effective Time of the Merger, to
the effect, among others, that the Merger will constitute a tax-free
reorganization within the meaning of Section 368 of the Code and that no gain or
loss will be recognized by the shareholders of Bank to the extent that they
receive SouthTrust Shares in exchange for their Bank Shares in the Merger.
ARTICLE 11
TERMINATION, WAIVER AND AMENDMENT
Section 11.1 Termination. This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time of the Merger:
(a) by the mutual consent in writing of the Board of Directors
of SouthTrust, ST-Sub, ST-Bank and the Bank; or
(b) by the Board of Directors of SouthTrust, ST-Sub, ST-Bank,
or the Bank if the Merger shall not have occurred on or prior to October 31,
1999, provided that the failure to consummate the Merger on or before such date
is not accompanied by any breach of any of the representations, warranties,
covenants or other agreements contained herein by the party electing to
terminate pursuant to this Section 11.1(2);
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(c) by the Board of Directors of SouthTrust, ST-Sub, ST-Bank
or the Bank (provided that the terminating party is not then in breach of any
representation or warranty contained in this Agreement under the applicable
standard set forth in Section 9.1 of this Agreement in the case of the Bank and
Section 10.1 in the case of SouthTrust and its subsidiaries or in breach of any
covenant or agreement contained in this Agreement) in the event of an inaccuracy
of any representation or warranty of the other party contained in this Agreement
which cannot be or has not been cured within thirty (30) days after the giving
of written notice to the breaching party of such inaccuracy and which inaccuracy
would provide the terminating party the ability to refuse to consummate the
Merger under the applicable standard set forth in Section 9.1 of this Agreement
in the case of the Bank and Section 10.1 of this Agreement in the case of
SouthTrust; or
(d) by the Board of Directors of SouthTrust, ST-Sub, ST-Bank
or the Bank (provided that the terminating party is not then in breach of any
representation or warranty contained in this Agreement under the applicable
standard set forth in Section 9.1 of this Agreement in the case of the Bank and
Section 10.1 in the case of SouthTrust or its subsidiaries or in breach of any
covenant or other agreement contained in this Agreement) in the event of a
material breach by the other party of any covenant or agreement contained in
this Agreement which cannot be or has not been cured within thirty (30) days
after the giving of written notice to the breaching party of such breach; or
(e) by the Board of Directors of SouthTrust, ST-Sub, ST-Bank
or the Bank in the event (i) any Consent of any Regulatory Authority required
for consummation of the Merger and the other transactions contemplated hereby
shall have been denied by final nonappealable action of such authority or if any
action taken by such authority is not appealed within the time limit for appeal,
or (ii) the shareholders of the Bank fail to vote their approval of this
Agreement and the Merger and the transactions contemplated hereby as required by
applicable law; or
(f) by the Board of Directors of SouthTrust, ST-Sub, ST-Bank
or the Bank (provided that the terminating party is not then in breach of any
representation or warranty contained in this Agreement under the applicable
standard set forth in Section 9.1 of this Agreement in this case of the Bank and
Section 10.1 in the case of SouthTrust or its subsidiaries or in breach of any
covenant or agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such party to consummate the Merger
(other than as contemplated by Section 11.1(5) of this Agreement) cannot be
satisfied or fulfilled by the date specified in Section 11.1(2) of this
Agreement as the date after which such party may terminate this Agreement; or
(g) by the Board of Directors of SouthTrust, ST-Sub or ST-Bank
in the event any shareholder of the Bank has commenced or threatened to commence
a cause of action, investigation or proceeding challenging the validity or
legality of the Voting and Stock Restriction Agreement with respect to the non-
applicability of Section 6 of that agreement to the Merger and the transactions
contemplated by this Agreement; or
(h) by the Bank at any time during the three-day period
following the Determination Date (as defined below), if the Average Closing
Price (as defined below) shall be less than the product of 0.85 and the Starting
Price (as defined below), subject to the following four sentences. If the Bank
elects to exercise its termination right pursuant to the immediately preceding
sentence, it shall give written notice to SouthTrust; provided that such notice
of election to terminate may be withdrawn at any time within the aforementioned
three- day period. During the five-day period commencing with its receipt of
such notice, SouthTrust shall have the option of adjusting the Conversion Ratio
to equal a number equal to a quotient (rounded to the nearest one-ten-
thousandth), the numerator of which is the product of 0.85, the Starting Price
and the Conversion Ratio (as then in effect) and the denominator of which is the
Average Closing Price. If SouthTrust makes an election contemplated within such
five-day period, it shall give written notice to the Bank of such election and
the revised Conversion Ratio, whereupon no termination shall have occurred
pursuant to this Section 11.1(8) and this Agreement shall remain in effect in
accordance with its terms (except as the Conversion Ratio shall have been so
modified), and any references in this Agreement to "Conversion Ratio" shall
thereafter be deemed to refer to the Conversion Ratio as adjusted pursuant to
this Section 11.1(8). For purposes of this Section 11.1(8), the following terms
shall have the meanings indicated:
"Average Closing Price" means the average of the last reported sales
prices per share of SouthTrust Shares as reported on NASDAQ/NMS (as reported in
The Wall Street Journal or, if not reported therein, in another
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mutually agreed upon authoritative source) for the 20 consecutive trading days
on NASDAQ/NMS ending at the close of trading on the Determination Date.
"Determination Date" means the date which is 45 days prior to the
scheduled Closing, as is reasonably anticipated by SouthTrust.
"Starting Date" shall mean the date of this Agreement.
"Starting Price" shall mean $39.4375.
If SouthTrust declares or effects a stock dividend, reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction between the Starting Date and the Determination Date, the prices for
the common stock of SouthTrust shall be appropriately adjusted for the purposes
of applying this Section 11.1(8).
Section 11.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 11.1 of this Agreement, the
Agreement shall terminate and have no effect, except that the provisions of
Sections 7.5 and 7.6, this Section 11.2, Section 11.6 and Article 12 of this
Agreement shall survive any such termination and abandonment.
Section 11.3 Termination Fee. If, after the date of this Agreement, (i)
an Acquisition Transaction (as defined below) is offered, presented or proposed
to the Bank or its shareholders, (ii) thereafter this Agreement is disapproved
by the Bank or by the shareholders of the Bank and (iii) within one year after
termination of this Agreement as a result of disapproval by the Bank or by the
shareholders of the Bank, an Acquisition Transaction is consummated or a
definitive agreement is entered into by the Bank relating to an Acquisition
Transaction (a "Trigger Event"), then immediately upon the occurrence of a
Trigger Event and in lieu of any other rights and remedies of SouthTrust, the
Bank shall pay SouthTrust a cash amount of $750,000 as an agreed-upon
termination fee (the "Termination Fee"). For purposes of this Section 11.3,
"Acquisition Transaction" shall mean any of the following: (i) a merger or
consolidation, or any similar transaction (other than the Merger) of any entity
with the Bank, (ii) a purchase, lease or other acquisition of all or
substantially all the assets of the Bank, (iii) a purchase or other acquisition
of "beneficial ownership" by any "person" or "group" (as such terms are defined
in Section 13(d)(3) of the Securities Exchange Act) (including by way of merger,
consolidation, share exchange, or otherwise) which would cause such person or
group to become the beneficial owner of securities representing 35% or more of
the voting power of the Bank, or (iv) a tender or exchange offer to acquire
securities representing 35% or more of the voting power of the Bank.
The Bank and SouthTrust agree that the Termination Fee is fair
and reasonable in the circumstances. If a court of competent jurisdiction shall
nonetheless, by a final, nonappealable judgment, determine that the amount of
any such Termination Fee exceeds the maximum amount permitted by law, then the
amount of such Termination Fee shall be reduced to the maximum amount permitted
by law in the circumstances, as determined by such court of competent
jurisdiction.
Section 11.4 Amendments. To the extent permitted by law, this Agreement
may be amended by a subsequent writing signed by each of SouthTrust, ST-Sub,
ST-Bank, and the Bank.
Section 11.5 Waivers. Subject to Section 12.11 hereof, prior to or at
the Effective Time of the Merger, SouthTrust, ST-Sub and ST-Bank, on the one
hand, and the Bank, on the other hand, shall have the right to waive any default
in the performance of any term of this Agreement by the other, to waive or
extend the time for the compliance or fulfillment by the other of any and all of
the other's obligations under this Agreement and to waive any or all of the
conditions to its obligations under this Agreement, except any condition, which,
if not satisfied, would result in the violation of any law or any applicable
governmental regulation.
Section 11.6 Non-Survival of Representations and Warranties. The
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered by SouthTrust, ST-Sub or ST-Bank, or the Bank shall not
survive the Effective Time of Merger, except that Sections 1.1(8), 1.2, 1.3,
2.1, 2.2, 2.3, 2.4, 6.2 (if applicable), 6.3, and 6.4 and Article 7 shall
survive the Effective Time of the Merger, and any representation, warranty or
agreement in any agreement, contract, report, opinion, undertaking or other
document or instrument delivered hereunder in whole or in part by any person
other than SouthTrust, ST-Sub, ST-Bank, the Bank (or directors and officers
thereof in their capacities as such) shall survive the Effective Time of Merger;
provided that no representation or warranty of SouthTrust, ST-Sub, ST-Bank or
the Bank contained herein shall be deemed to be
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terminated or extinguished so as to deprive SouthTrust, ST-Sub, or ST-Bank, on
the one hand, and the Bank, on the other hand, of any defense at law or in
equity which any of them otherwise would have to any claim against them by any
person, including, without limitation, any shareholder or former shareholder of
either party. No representation or warranty in this Agreement shall be affected
or deemed waived by reason of the fact that SouthTrust, ST-Sub, ST-Bank or the
Bank and/or its representatives knew or should have known that any such
representation or warranty was, is, might be or might have been inaccurate in
any respect.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Entire Agreement. This Agreement and the documents
referred to herein contain the entire agreement among SouthTrust, ST-Sub,
ST-Bank and the Bank with respect to the transactions contemplated hereunder and
this Agreement supersedes all prior arrangements or understandings with respect
thereto, whether written or oral. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person, firm, corporation or entity,
other than the parties hereto and its successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 12.2 Definitions. Except as otherwise provided herein, the
capitalized terms set forth below (in their singular and plural forms as
applicable) shall have the following meanings:
"Affiliate" of a person shall mean (i) any other person
directly or indirectly through one or more intermediaries controlling,
controlled by or under common control of such person, (ii) any officer,
director, partner, employer or direct or indirect beneficial owner of any 10% or
greater equity of voting interest of such person or (iii) any other persons for
which a person described in clause (ii) acts in any such capacity.
"Consent" shall mean a consent, approval or authorization,
waiver, clearance, exemption or similar affirmation by any person pursuant to
any lease, contract, permit, law, regulation or order.
"Environmental Law" means any applicable federal, state or
local law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree or injunction relating
to (i) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of any substance presently listed, defined, designated or classified
as hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether
by type or by substance as a component.
"Hazardous Material" means any pollutant, contaminant, or
hazardous substance within the meaning of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., or any
similar federal, state or local law.
"Loan Property" means any property owned by the Bank or in
which the Bank holds a security interest, and, where required by the context,
includes the owner or operator of such property, but only with respect to such
property.
"Material Adverse Effect," with respect to any party, shall
mean any event, change or occurrence which, together with any other event,
change or occurrence, has a material adverse impact on (i) the financial
position, business or results of operation, financial performance or prospects
of such party and its subsidiaries, taken as a whole, or (ii) the ability of
such party to perform its obligations under this Agreement or to consummate the
Merger and the other transactions contemplated by this Agreement.
"Participation Facility" means any facility in which the Bank
has engaged in Participation in the Management of such facility, and, where
required by the context, includes the owner or operator of such facility, but
only with respect to such facility.
"Participation in the Management" of a facility has the
meaning set forth in 40 C.F.R. ss. 300.1100(c).
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"Regulatory Authorities" shall mean, collectively, the Federal
Trade Commission (the "FTC"), the United States Department of Justice (the
"Justice Department"), the Board of Governors of the Federal Reserve System (the
"FRB"), the Office of the Comptroller of the Currency (the "OCC"), the Federal
Deposit Insurance Corporation (the "FDIC"), and all state regulatory agencies
having jurisdiction over the parties, the National Association of Securities
Dealers, Inc., all national securities exchanges and the Securities and Exchange
Commission (the "SEC").
Section 12.3 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by first class or registered or certified mail, postage
prepaid, telegram or telex or other facsimile transmission addressed as follows:
If to the Bank:
Navigation Bank
3801 Navigation Boulevard
Houston, Texas 77001
Attention: William C. Woodby
Fax: (713) 223-1417
with a copy to:
Hausler, Farra & Kennedy
Sterling Bank Building
4600 Gulf Freeway, Suite 600
Houston, Texas 77023-3551
Attention: Larry Hausler, Esq.
Fax: (713) 928-6744
If to ST-Bank or SouthTrust, then to:
SouthTrust Corporation
420 North 20th Street
Birmingham, Alabama 35203
Attention: Alton E. Yother
Fax: (205) 254-5022
with a copy to:
Bradley Arant Rose & White LLP
2001 Park Place, Suite 1400
Birmingham, Alabama 35203
Attention: Paul S. Ware, Esq.
Fax: (205) 521-8800
All such notices or other communications shall be deemed to
have been delivered (i) upon receipt when delivery is made by hand, (ii) on the
third (3rd) business day after deposit in the United States mail when delivery
is made by first class, registered or certified mail, and (iii) upon
transmission when made by telegram, telex or other facsimile transmission if
evidenced by a sender transmission completed confirmation.
Section 12.4 Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of competent
jurisdiction or other competent authority to be invalid, void or unenforceable
or against public or regulatory policy, the remainder of the terms, provisions,
covenants and restrictions contained in this Agreement shall remain in full
force and effect and in no way shall be affected, impaired or invalidated, if,
but only if, pursuant to such remaining terms, provisions, covenants and
restrictions the Merger may be consummated in substantially the same manner as
set forth in this Agreement as of the later of the date this Agreement was
executed or last amended.
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Section 12.5 Costs and Expenses. Except as set forth in this Section
12.5, expenses incurred by the Bank on the one hand and SouthTrust on the other
hand, in connection with or related to the authorization, preparation and
execution of this Agreement, the solicitation of shareholder approval and all
other matters related to the closing of the transactions contemplated hereby,
including all fees and expenses of agents, representatives, counsel and
accountants employed by either such party or its affiliates, shall be borne
solely and entirely by the party which has incurred same. Expenses incurred by
the Bank pursuant to Sections 5.8, 5.9, and 5.10 of this Agreement shall be
reimbursed to the Bank by SouthTrust or one of its Affiliates in the event this
Agreement is terminated by the Bank pursuant to Section 11.1(3) or 11.1(4) of
this Agreement.
Section 12.6 Captions. The captions as to contents of particular
articles, sections or paragraphs contained in this Agreement and the table of
contents hereto are inserted only for convenience and are in no way to be
construed as part of this Agreement or as a limitation on the scope of the
particular articles, sections or paragraphs to which they refer.
Section 12.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document with the same force
and effect as though all parties had executed the same document.
Section 12.8 Governing Law. This Agreement is made and shall be
governed by and construed in accordance with the laws of the State of Alabama
without respect to its conflicts of laws principles.
Section 12.9 Persons Bound; No Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors, distributees, and assigns, but notwithstanding the
foregoing, this Agreement may not be assigned by any party hereto unless the
prior written consent of the other parties is first obtained (other than by
ST-Bank to another affiliate of SouthTrust).
Section 12.10 Exhibits and Schedules. Each of the exhibits and
schedules attached hereto is an integral part of this Agreement and shall be
applicable as if set forth in full at the point in the Agreement where reference
to it is made.
Section 12.11 Waiver. The waiver by any party of the performance of any
agreement, covenant, condition or warranty contained herein shall not invalidate
this Agreement, nor shall it be considered a waiver of any other agreement,
covenant, condition or warranty contained in this Agreement. A waiver by any
party of the time for performing any act shall not be deemed a waiver of the
time for performing any other act or an act required to be performed at a later
time. The exercise of any remedy provided by law, equity or otherwise and the
provisions in this Agreement for any remedy shall not exclude any other remedy
unless it is expressly excluded. The waiver of any provision of this Agreement
must be signed by the party or parties against whom enforcement of the waiver is
sought. This Agreement and any exhibit, memorandum or schedule hereto or
delivered in connection herewith may be amended only by a writing signed on
behalf of each party hereto.
Section 12.12 Construction of Terms. Whenever used in this Agreement,
the singular number shall include the plural and the plural the singular.
Pronouns of one gender shall include all genders. Accounting terms used and not
otherwise defined in this Agreement have the meanings determined by, and all
calculations with respect to accounting or financial matters unless otherwise
provided for herein, shall be computed in accordance with generally accepted
accounting principles, consistently applied. References herein to articles,
sections, paragraphs, subparagraphs or the like shall refer to the corresponding
articles, sections, paragraphs, subparagraphs or the like of this Agreement. The
words "hereof", "herein", and terms of similar import shall refer to this entire
Agreement. Unless the context clearly requires otherwise, the use of the terms
"including", "included", "such as", or terms of similar meaning, shall not be
construed to imply the exclusion of any other particular elements.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered, and their respective seals hereunto affixed, by their
officers thereunto duly authorized, and have caused this Agreement to be dated
as of the date and year first above written.
NAVIGATION BANK
By: /s/ WILLIAM C. WOODBY, PRES.
---------------------------------------
Name: William C. Woodby, Pres.
-------------------------------------
Its: Chief Executive Officer
ATTEST:
By: /s/ ZOE BRADSTREET
---------------------------------
Name: Zoe Bradstreet
-------------------------------
Its: Secretary
[CORPORATE SEAL]
SOUTHTRUST BANK, NATIONAL
ASSOCIATION
By: /s/ JOHN D. BUCHANAN
--------------------------------------
Name: John D. Buchanan
------------------------------------
Its: Senior Vice President
-------------------------------------
ATTEST:
By: /s/ FRANCES L. SANDERS
----------------------------------
Name: Frances L. Sanders
--------------------------------
Its: Secretary
[CORPORATE SEAL]
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SOUTHTRUST CORPORATION
By: /s/ JOHN D. BUCHANAN
--------------------------------
Name: John D. Buchanan
------------------------------
Its: Senior Vice President
-------------------------------
ATTEST:
By: /s/ ALTON E. YOTHER
-------------------------------
Name: Alton E. Yother
-----------------------------
Its: Secretary
------------------------------
[CORPORATE SEAL]
SOUTHTRUST OF ALABAMA, INC.
By: /s/ JOHN D. BUCHANAN
--------------------------------
Name: John D. Buchanan
------------------------------
Its: Vice President
-------------------------------
ATTEST:
By: /s/ ALTON E. YOTHER
--------------------------------
Name: Alton E. Yother
------------------------------
Its: Secretary
[CORPORATE SEAL]
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EXHIBIT B
HOEFER & ARNETT
INCORPORATED
INVESTMENT BANKERS
101 W. SIXTH STREET, SUITE 416
AUSTIN, TEXAS 78701
May 25, 1999
Members of the Board of Directors
Navigation Bank
P.O. Box 228
Houston, Texas 77001
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of Navigation Bank, Houston, Texas
("Navigation") of the terms of the proposed merger of Navigation with and into
SouthTrust Bank, N.A., Birmingham, Alabama ("ST-Bank"), an indirect banking
subsidiary of SouthTrust Corporation, a Delaware corporation ("SouthTrust"), as
defined in the Agreement and Plan of Merger, dated as of May 3, 1999 (the
"Agreement"). Pursuant to the Agreement and subject to the terms and conditions
therein, each share of common stock, par value $32.50 per share ("Navigation
Common Stock"), of Navigation outstanding immediately prior to the Effective
Time of the Merger (as that term is defined in the Agreement) shall be converted
into the right to receive 11.1149 shares of common stock of SouthTrust
("SouthTrust Common Stock"), which such Conversion Ratio may be adjusted in
certain circumstances as described in the Agreement. Based on 43,345 outstanding
shares of Navigation Common Stock and the starting price of $39.4375 per share
of SouthTrust Common Stock, SouthTrust will issue 481,775 shares of SouthTrust
Common Stock for a total purchase price of $19 million.
As part of its investment banking business, Hoefer & Arnett, Incorporated is
continually engaged in the valuation of bank, bank holding company and thrift
securities in connection with mergers and acquisitions nationwide. We have not
previously provided investment banking and financial advisory services to
Navigation.
In connection with this assignment, we have reviewed and analyzed, among other
things, the following: (i) the Agreement; (ii) Annual Reports to Shareholders of
SouthTrust for the years ended December 31, 1997 and December 31, 1998; (iii)
Quarterly Call reports of Navigation and ST-Bank filed with the Federal Deposit
Insurance Corporation and Form 10-Q of SouthTrust filed with the U. S.
Securities Exchange Commission for the quarters ended March 31, 1998, June 30,
1998, September 30, 1998, December 31, 1998 and March 31, 1999; (iv) certain
other publicly available financial and other information concerning SouthTrust
and Navigation and the trading markets for the publicly traded securities of
SouthTrust; and (v) publicly available information concerning other banks and
holding companies, the trading markets for their securities and the nature and
terms of certain other merger transactions we believe relevant to our inquiry.
We have held discussions with senior management of Navigation and SouthTrust
concerning their past and current operations, financial condition and prospects,
as well as the results of regulatory examinations.
We have reviewed with senior management of SouthTrust earnings projections for
1999 through 2001 for SouthTrust as a stand-alone entity, assuming the merger
does not occur. We reviewed with senior management of Navigation earnings
projections for 1999 through 2001 for Navigation as a stand-alone entity,
assuming the merger does not occur, prepared by Navigation, as well as cost
savings expected to be achieved in each of the years resulting from the merger.
Such projections were prepared by Navigation senior management. Certain pro
forma financial projections for the years 1999 through 2001 for the combined
entity were derived by us based partially upon the projections discussed above,
as well as our own assessment of general economic, market and financial
conditions. In certain cases, such combined pro forma financial projections
included projected operating cost savings derived by us partially based upon the
projections discussed above to be realizable in the merger.
In conducting our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and we have not assumed any responsibility for independent
verification of the same. We have relied upon the managements of Navigation and
SouthTrust as to the
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HOEFER & ARNETT
INCORPORATED
reasonableness of the financial and operating forecasts, projections (and the
assumptions and bases therefor) provided to us, and we have assumed that such
forecasts and projections reflect the best currently available estimates and
judgments of the applicable managements. We have also assumed without assuming
any responsibility for the independent verification of the same, that the
aggregate allowances for loan losses for Navigation and SouthTrust are adequate
to cover such losses. We have not made or obtained any evaluations or appraisals
of the property of Navigation or SouthTrust nor have we examined any individual
loan credit files. For purposes of this opinion, we have assumed that the merger
will have the tax, accounting and legal effects described in the Agreement and
assumed the accuracy of the disclosures set forth in the Agreement. Our opinion
as expressed herein is limited to the fairness, from a financial point of view,
to the holders of shares of Navigation Common Stock of the terms of the proposed
merger of Navigation with and into ST-Bank and does not address Navigation's
underlying business decision to proceed with the acquisition.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Navigation and SouthTrust and its subsidiaries, including interest income,
interest expense, net interest income, net interest margin, provision for loan
losses, non-interest income, non-interest expense, earnings, dividends, internal
capital generation, book value, intangible assets, return on assets, return on
shareholders' equity, capitalization, the amount and type of non-performing
assets, loan losses and the reserve for loan losses, all as set forth in the
financial statements for Navigation and SouthTrust, (ii) the assets and
liabilities of Navigation and of SouthTrust, including the loan, investment and
mortgage portfolios, deposits, other liabilities, historical and current
liability sources and costs and liquidity; and (iii) the nature and terms of
certain other merger and acquisition transactions involving banks and bank
holding companies. We have considered all other acquisition offers received by
Navigation and have concluded that the proposed merger with SouthTrust is
financially superior to all other offers received. We have also taken into
account our assessment of general economic, market and financial conditions and
our experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date hereof.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the terms of the proposed merger of
Navigation with and into ST-Bank are fair, from a financial point of view, to
the holders of the shares of Navigation Common Stock.
It is understood that this letter is for the information of the Board of
Directors of Navigation and does not constitute a recommendation to the Board of
Directors or to any shareholder of Navigation with respect to any approval of
the merger. We hereby consent to the reference to our firm in the proxy
statement or prospectus related to the merger transaction to be included in the
registration statement on Form S-4 to be filed by SouthTrust with the Securities
and Exchange Commission and to the inclusion of our opinion as an exhibit to the
proxy statement or prospectus related to the merger transaction and in the
registration statement.
Respectfully Submitted,
Hoefer & Arnett, Incorporated
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EXHIBIT C
TEXAS BUSINESS CORPORATION ACT
Article 5.12. Procedure for Dissent by Shareholders as to Said Corporate Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to a vote
of shareholders at a meeting, the shareholder shall file with the corporation,
prior to the meeting, a written objection to the action, setting out that the
shareholder's right to dissent will be exercised if the action is effective
and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the
shareholder shall not have voted in favor of the action, the corporation, in
the case of action other than a merger, or the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the action is effected, deliver or mail to the shareholder
written notice that the action has been effected, and the shareholder may,
within ten (10) days from the delivery or mailing of the notice, make written
demand on the existing, surviving, or new corporation (foreign or domestic) or
other entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value thereof
as of the day immediately preceding the meeting, excluding any appreciation or
depreciation in anticipation of the proposed action. The demand shall state
the number and class of the shares owned by the shareholder and the fair value
of the shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to
Section A of Article 9. 10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right
of dissent, in the case of a merger, shall, within ten (10) days after the
date the action is effected, mail to each shareholder of record as of the
effective date of the action notice of the fact and date of the action and
that the shareholder may exercise the shareholder's right to dissent from the
action. The notice shall be accompanied by a copy of this Article and any
articles or documents filed by the corporation with the Secretary of State to
effect the action. If the shareholder shall not have consented to the taking
of the action, the shareholder may, within twenty (20) days after the mailing
of the notice, make written demand on the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, for
payment of the fair value of the shareholder's shares. The fair value of the
shares shall be the value thereof as of the date the written consent
authorizing the action was delivered to the corporation pursuant to Section A
of Article 9.10 of this Act, excluding any appreciation or depreciation in
anticipation of the action. The demand shall state the number and class of
shares owned by the dissenting shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand within
the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by
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certificates, upon the surrender of the certificates duly endorsed, or shall
contain an estimate by the corporation (foreign or domestic) or other entity
of the fair value of the shares, together with an offer to pay the amount of
that estimate within ninety (90) days after the date on which the action was
effected, upon receipt of notice within sixty (60) days after that date from
the shareholder that the shareholder agrees to accept that amount and, in
the case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action
was effected, the value of the shares is agreed upon between the shareholder
and the existing, surviving, or new corporation (foreign or domestic) or
other entity, as the case may be, payment for the shares shall be made
within ninety (90) days after the date on which the action was effected and,
in the case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the
shareholder shall cease to have any interest in the shares or in the
corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the shareholders
who have complied with the provisions of this Article and have become entitled
to the valuation of and payment for their shares, and shall appoint one or more
qualified appraisers to determine that value. The appraisers shall have power to
examine any of the books and records of the corporation the shares of which they
are charged with the duty of valuing, and they shall make a determination of the
fair value of the shares upon such investigation as to them may seem proper. The
appraisers shall also afford a reasonable opportunity to the parties interested
to submit to them pertinent evidence as to the value of the shares. The
appraisers shall also have such power and authority as may be conferred on
Masters in Chancery by the Rules of Civil Procedure or by the order of their
appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
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<PAGE> 150
E. Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the date of
the filing of the articles of merger, the surviving corporation is the owner of
all the outstanding shares of the other corporations, domestic or foreign, that
are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ARTICLE 5.13. Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote
or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shares or before any petition has been filed pursuant to
Article 5.12 or 5.16 of this Act asking for a finding and determination of the
fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn as
hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case may be, or if no petition asking for a finding and
determination of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act, as the case may
be, or if after the hearing of a petition filed pursuant to Article 5.12 or
5.16, the court shall determine that such shareholder is not entitled to the
relief provided by those articles, then, in any such case, such shareholder and
all persons claiming under him shall be conclusively presumed to have approved
and ratified the corporate action from which he dissented and shall be bound
thereby, the right of such shareholder to be paid the fair value of his shares
shall cease, and his status as a shareholder shall be restored without prejudice
to any corporate proceedings which may have been taken during the interim, and
such shareholder shall be entitled to receive any dividends or other
distributions made to shareholders in the interim.
C-3
<PAGE> 151
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation and the Bylaws of the
Registrant provide that the Registrant shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
the State of Delaware, which permits a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, against
expenses (including attorney's fees), judgments, fines and settlements incurred
by him in connection with any such suit or proceeding, if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of a derivative action on behalf
of the corporation, if he was not adjudged to be liable for negligence or
misconduct.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<S> <C>
2 Agreement and Plan of Merger by and between Navigation Bank and
SouthTrust Bank, National Association, and joined in by SouthTrust
Corporation and SouthTrust of Alabama, Inc. (included as Exhibit A
to the Proxy State ment/Prospectus filed as part of this
Registration Statement).
* 3(a) Composite Restated Bylaws of SouthTrust Corporation.
* 3(b) Composite Restated Certificate of Incorporation of SouthTrust
Corporation.
* 4(a) Certificate of Designation, Preferences and Rights of Series 1999
Junior Participating Preferred Stock, adopted December 16, 1998
and effective February 22, 1999, which was filed as Exhibit A to
Exhibit 1 to SouthTrust Corporation's Registration Statement
on Form 8-A (File No. 0-3613).
* 4(b) Stockholders' Rights Agreement, dated as of January 12,
1999 and effective February 22 , 1999, between SouthTrust
Corporation and ChaseMellon Shareholder Services, LLC, Rights
Agent, which was filed as Exhibit 1 to SouthTrust
Corporation's Registration Statement on Form 8-A (File No. 0-3613).
* 4(c) Indenture, dated as of May 1, 1987 between SouthTrust
Corporation and National Westminster Bank USA, which was
filed as Exhibit 4(a) to SouthTrust Corporation's
Registration Statement on Form S-3 (Registration No. 33-13637).
* 4(d) Subordinated Indenture, dated as of May 1, 1992, between
SouthTrust Corporation and Chemical Bank, which was filed as
Exhibit 4(1)(ii) to the Registration Statement on Form S-3 of
SouthTrust Corporation (Registration No. 33-44857).
5 Opinion of Bradley Arant Rose & White LLP as to the legality
of the securities being registered.
8 Form of Opinion of Bradley Arant Rose & White LLP regarding certain
tax matters.
9 Voting Agreement by and among SouthTrust Bank, National Association,
SouthTrust of Alabama, Inc., SouthTrust Corporation, Jerry E. Winters
and William C. Woodby.
23(a) Consent of Arthur Andersen LLP (with respect to SouthTrust
Corporation).
23(b) Consent of Killingsworth & Company P.C. (with respect to
Navigation Bank).
23(c) Consent of Bradley Arant Rose & White LLP (included in Exhibit 5).
23(d) Consent of Hoefer & Arnett Incorporated (included in Exhibit B to the
Proxy Statement/Prospectus filed as part of this Registration
Statement).
24 Powers of Attorney.
</TABLE>
- --------------
* Incorporated by reference.
II-1
<PAGE> 152
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement. Notwithstanding the foregoing,
any increase or decrease in volume of
securities offered (if the total dollar
value of securities offered would not
exceed that which was registered) and any
deviation from the low or high end of the
estimated maximum offering range may be
reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume
and price represent no more than a 20
percent change in the maximum aggregate
offering price set forth in the
"Calculation of Registration Fee" table in
the effective Registration Statement;
(iii) to include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Exchange
Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the
securities registered hereunder through use of a
prospectus which is a part of this Registration
Statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering
prospectus will contain the information called for
by the applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i)
that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of
II-2
<PAGE> 153
the Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement
and will not be used until such amendment is
effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be
a new Registration Statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such
request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the
effective date of the registration statement through the date
of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-3
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama, on June 2, 1999.
SOUTHTRUST CORPORATION
By: /s/ WALLACE D. MALONE, JR.
----------------------------
Its Chairman of the Board of
Directors, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WALLACE D. MALONE, JR. Chairman, President, Chief Executive June 2, 1999
- ------------------------------------ Officer, Director
Wallace D. Malone, Jr. (Principal Executive Officer)
/s/ ALTON E. YOTHER Secretary, Treasurer and June 2, 1999
- ------------------------------------ Controller (Principal
Alton E. Yother Accounting and
Financial Officer)
/s/ JULIAN W. BANTON Director June 2, 1999
- ------------------------------------ (Chairman and Chief Executive
Julian W. Banton Officer, SouthTrust Bank, N.A.)
* Director ______, 1999
- ------------------------------------
Allen J. Keesler, Jr.
- ------------------------------------ Director ______, 1999
Van L. Richey
* Director ______, 1999
- ------------------------------------
Carl F. Bailey
* Director ______, 1999
- ------------------------------------
Rex J. Lysinger
* Director ________, 1999
- ------------------------------------
William C. Hulsey
</TABLE>
II-4
<PAGE> 155
<TABLE>
<S> <C> <C>
* Director ______, 1999
- ------------------------------------
John M. Bradford
* Director ______, 1999
- ------------------------------------
Wm. Kendrick Upchurch, Jr.
* Director ______, 1999
- ------------------------------------
H. Allen Franklin
* Director ______, 1999
- ------------------------------------
William A. Coley
* Director ______, 1999
- ------------------------------------
Donald M. James
*BY/S/ WILLIAM L. PRATER June 2, 1999
---------------------------------
William L. Prater
Attorney-in-fact
</TABLE>
II-5
<PAGE> 156
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2 Agreement and Plan of Merger by and between Navigation
Bank and SouthTrust Bank, National Association, and joined in
by SouthTrust Corporation and SouthTrust of Alabama, Inc.
(included as Exhibit A to the Proxy Statement/Prospectus
filed as part of this Registration Statement).
* 3(a) Composite Restated Bylaws of SouthTrust Corporation.
* 3(b) Composite Restated Certificate of Incorporation of SouthTrust
Corporation.
* 4(a) Certificate of Designation, Preferences and Rights
of Series 1999 Junior Participating Preferred Stock,
adopted December 16, 1998 and effective February 22,
1999, which was filed as Exhibit A to Exhibit 1 to
SouthTrust Corporation's Registration Statement on Form
8-A (File No. 0-3613).
* 4(b) Stockholders' Rights Agreement, dated as of January 12, 1999
and effective February 22, 1999, between SouthTrust
Corporation and ChaseMellon Shareholder Services, LLC, Rights
Agent, which was filed as Exhibit 1 to SouthTrust
Corporation's Registration Statement on Form 8-A (File No.
0-3613).
* 4(c) Indenture, dated as of May 1, 1987 between SouthTrust
Corporation and National Westminster Bank USA, which was
filed as Exhibit 4(a) to SouthTrust Corporation's
Registration Statement on Form S-3 (Registration No.
33-13637).
* 4(d) Subordinated Indenture, dated as of May 1, 1992, between
SouthTrust Corporation and Chemical Bank, which was filed as
Exhibit 4(1)(ii) to the Registration Statement on Form S-3 of
SouthTrust Corporation (Registration No. 33-44857).
5 Opinion of Bradley Arant Rose & White LLP as to the legality
of the securities being registered.
8 Form of Opinion of Bradley Arant Rose & White LLP regarding
certain tax matters.
9 Voting Agreement by and among SouthTrust Bank, National
Association, SouthTrust of Alabama, Inc., SouthTrust
Corporation, Jerry E. Winters and William C. Woodby.
23(a) Consent of Arthur Andersen LLP (with respect to SouthTrust
Corporation).
23(b) Consent of Killingsworth & Company (with respect to Navigation
Bank).
23(c) Consent of Bradley Arant Rose & White LLP (included in Exhibit
5).
23(d) Consent of Hoefer & Arnett Incorporated (included in Exhibit
B to the Proxy Statement/Prospectus filed as part of this
Registration Statement).
24 Powers of Attorney.
</TABLE>
- ------------------
* Incorporated by reference.
II-7
<PAGE> 1
EXHIBIT 5
May 27, 1999
SouthTrust Corporation
420 North 20th Street
Birmingham, Alabama 35203
Ladies and Gentlemen:
In our capacity as counsel for SouthTrust Corporation, a Delaware
corporation ("SouthTrust"), we have examined the Registration Statement on Form
S-4 (the "Registration Statement"), in the form proposed to be filed by
SouthTrust with the Securities and Exchange Commission under the provisions of
the Securities Act of 1933, relating to the proposed merger (the "Merger") of
Navigation Bank, a Texas banking corporation ("Navigation"), with and into
SouthTrust Bank, National Association, a national banking association, and the
issuance of up to 481,775 shares of common stock, par value $2.50 per share, of
SouthTrust (the "Shares") and up to 481,775 rights to purchase 1/100th of one
share of Series 1999 Junior Participating Preferred Stock (the "Rights") in
connection with the Merger. Pursuant to the Merger, each holder of shares of
common stock of Navigation will receive shares of SouthTrust common stock. In
this connection, we have examined such records, documents and proceedings as we
have deemed relevant and necessary as a basis for the opinions expressed
herein.
Upon the basis of the foregoing, we are of the opinion that:
(i) the Shares and Rights to be offered under the Registration
Statement, to the extent actually issued pursuant to the Merger, will
have been duly and validly authorized and issued and will be fully
paid and nonassessable; and
(ii) under the laws of the State of Delaware, no personal liability
will attach to the ownership of the Shares and Rights.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement. In
addition, we hereby consent to the inclusion of the statements made in
reference to our firm under the caption "LEGAL MATTERS" in the Proxy
Statement/Prospectus which is a part of the Registration Statement.
Yours Very Truly,
/S/ BRADLEY ARANT ROSE & WHITE LLP
<PAGE> 1
Exhibit 8
FORM OF OPINION OF BRADLEY ARANT ROSE & WHITE LLP
AS CERTAIN TAX MATTERS
{_____}, 1998
Navigation Bank
3801 Navigation Boulevard
Houston, Texas 77001
Re: Agreement and Plan of Merger by and between Navigation Bank
and SouthTrust Bank, N. A. and joined in by SouthTrust
Corporation and SouthTrust of Alabama, Inc.
Ladies and Gentlemen:
You have requested the opinion of Bradley Arant Rose & White
LLP, as counsel to SouthTrust Corporation, a Delaware corporation
("SouthTrust"), regarding the transactions contemplated by that certain
Agreement and Plan of Merger dated May 3, 1999 (the "Merger Agreement"), by and
between Navigation Bank ("Navigation") and SouthTrust Bank, N.A., a national
banking association ("ST-Bank"), and joined in by SouthTrust and SouthTrust of
Alabama, Inc., an Alabama corporation and a wholly-owned subsidiary of
SouthTrust ("ST-Sub"). Specifically, you have requested us to opine that the
merger of Navigation with and into ST-Bank (the "Merger") pursuant to the Merger
Agreement will constitute a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that no gain or loss
will be recognized by the shareholders of Navigation upon the receipt solely of
SouthTrust voting common stock in exchange for their shares of common stock, par
value $32.50 per share, of Navigation ("Navigation Common Stock") upon
consummation of the Merger.
This opinion is being rendered pursuant to Section 10.08 of
the Merger Agreement and the requirements of Item 21(a) of the registration
statement on Form S-4 (the "Registration Statement") filed by SouthTrust with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended. Capitalized terms used herein and not otherwise defined
herein have the meanings given to them in the Merger Agreement.
In rendering the opinion set forth below, we have examined and
relied upon originals or copies of the Merger Agreement, upon representations
provided to us by letter from Navigation, dated {_________}, 1999, and from
SouthTrust, dated {_______}, 1999, each as described in the representation
section of this letter (the "Representation Letters") and such other documents
and materials as we have deemed necessary as a basis for such opinion. In
connection with such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents, agreements and instruments
submitted to us as originals, the conformity to original documents, agreements
and instruments of all documents, agreements and instruments submitted to us as
copies or specimens
<PAGE> 2
Navigation Bank
{_______}, 1999
Page 2
and the authenticity of the originals of such documents, agreements and
instruments submitted to us as copies or specimens, and, as to factual matters,
the veracity of written statements made by officers and other representatives of
Navigation and SouthTrust included in the Merger Agreement and the
Representation Letters. With your consent, we have assumed that the
representations made by each of Navigation and SouthTrust in the Representation
Letters continue to be true and correct as of the date of this opinion.
The opinion stated below is based upon the relevant provisions
of the Code, regulations promulgated pursuant thereto by the Department of the
Treasury and the Internal Revenue Service (the "IRS"), current administrative
rulings and applicable judicial decisions, all of which are subject to change.
Neither SouthTrust, ST-Sub, ST-Bank nor Navigation has requested or will
receive an advance ruling from the IRS as to any of the federal income tax
effects to holders of shares of Navigation Common Stock of the Merger, or of any
of the federal income tax effects to SouthTrust, ST-Sub, ST-Bank or Navigation
of the Merger. Our opinion set forth below is not binding upon the IRS, and
there can be no assurance, and none hereby is given, that the IRS will not take
a position contrary to one or more of the positions reflected herein, or that
our opinion will be upheld by the courts if challenged by the IRS.
FACTS
SouthTrust is a registered bank holding company and is the
common parent of an affiliated group of corporations, including ST- Sub and
ST-Bank, that file consolidated federal income tax returns on the calendar year
basis. Shares of SouthTrust Common Stock are publicly held and are publicly
traded through the Automated Quotation System of the Nasdaq Stock Market.
In accordance with resolutions of SouthTrust's Board of
Directors adopted on December 18, 1998, each share of SouthTrust Common Stock
issued and outstanding carries with it one right to purchase from SouthTrust one
one-hundredth of a share of SouthTrust Preferred Stock designated as the Series
1999 Junior Participating Preferred Stock at a purchase price of $150.00 (a
"Right"). These Rights will expire on February 22, 2009 unless redeemed earlier
and are not exercisable or transferable separately from the shares of SouthTrust
Common Stock until the occurrence of certain events associated with an
acquisition of a substantial amount of SouthTrust Common Stock. The provisions
of the Rights are more fully described in the Rights Agreement between
SouthTrust and ChaseMellon Shareholder Services LLC, as Rights Agent, and the
Certificate of Designation for the Series 1999 Junior Participating Preferred
Stock, copies of each of which are exhibits to the Registration Statement.
Immediately prior to the Merger, SouthTrust will own 100% of
the capital stock of ST-Sub, and ST-Sub will own 100% of the capital stock of
ST-Bank. Both of ST-Sub and ST-Bank are included in the consolidated federal
income tax return of SouthTrust.
<PAGE> 3
Navigation Bank
{_______}, 1999
Page 3
Navigation is a corporation organized pursuant to the laws of
the State of Texas and a registered bank holding company. As of May 31, 1999,
the authorized capital stock of Navigation consisted of 43,345 shares of
Navigation Common Stock, of which 43,345 shares were issued and outstanding.
Other than certain directors' qualifying shares, Navigation does not own any
shares of any other entity. Navigation is an accrual method taxpayer using a
calendar year accounting period.
THE PROPOSED TRANSACTIONS
Pursuant to the Merger Agreement the following transactions
will take place:
(1) ST-Sub will acquire all of the assets and liabilities of
Navigation in exchange for voting common stock of SouthTrust in a transaction in
which ST-Sub directs that all of the assets and liabilities of Navigation will
be transferred to ST-Bank by means of a statutory merger of Navigation with and
into ST-Bank pursuant to the Merger Agreement.
(2) Navigation will merge with and into ST-Bank in accordance
with Section 32.501 of the Texas Finance Code and 12 U.S.C. Section 215a.
ST-Bank will be the surviving corporation and will acquire all of the assets and
liabilities of Navigation. The separate corporate existence of Navigation will
terminate.
(3) SouthTrust will issue a total of 481,775 shares of
SouthTrust Common Stock in exchange for all of the issued and outstanding shares
of Navigation Common Stock. As of the date of the Merger Agreement, a total of
43,345 shares of Navigation Common Stock would be issued and outstanding.
(4) Each share of Navigation Common Stock, will become and be
converted into the right to receive 11.1149 shares of SouthTrust Common Stock,
and one Right will be issued with each share of SouthTrust Common Stock
exchanged in the Merger for Navigation Common Stock.
(5) No fractional shares of SouthTrust Common Stock will be
issued in the Merger; each holder of Navigation Common Stock who would otherwise
be entitled to receive a fractional share interest, if any, will receive cash in
lieu of a fractional share.
(6) Any holder of Navigation Common Stock who dissents from
the Merger will be entitled to receive from the surviving corporation the fair
value of his or her shares in cash. Immediately prior to the Effective Time of
the Merger, Navigation will establish an escrow account with an amount of cash
equal to One Hundred and Fifty Percent (150%) of the value of the SouthTrust
Common Stock which the dissenting shareholders would have been entitled to
receive in the Merger but for the exercise of their rights of dissent (the
"Dissent Escrow"). The escrow agent will disburse the escrowed funds to the
dissenting shareholders in accordance with the Dissent Provisions. Any
<PAGE> 4
Navigation Bank
{_______}, 1999
Page 4
and all funds remaining in the Dissent Escrow after such disbursement will be
remitted to ST-Bank as the surviving corporation.
REPRESENTATIONS
Officers of Navigation and SouthTrust each have made certain
written representations to us on behalf of their respective institutions by
letters dated {_____}, 1999, and {_____}, 1999, respectively (the
"Representation Letters"), and with your consent, we have relied upon the
accuracy and validity of these representations provided in the Representation
Letters in offering the opinions expressed below and, with your consent, have
assumed that the representations contained therein continue to be true and
correct as of the date of this opinion.
OPINION
Upon the basis of the foregoing facts and representations, and
solely for purposes of the Code, we are of the opinion that:
(i) For federal income tax purposes the Merger will be viewed
as an acquisition by ST-Sub of substantially all of the assets of Navigation
solely in exchange for SouthTrust voting common stock and the assumption of all
the liabilities of Navigation by ST-Sub, followed by the transfer of the assets
of Navigation to ST-Bank and the assumption by ST-Bank of the liabilities of
Navigation.
(ii) The acquisition by ST-Sub of substantially all of the
assets of Navigation in exchange solely for shares of SouthTrust voting common
stock and the assumption by ST-Sub of Navigation's liabilities, as described
above, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code. For purposes of this opinion, "substantially all"
means at least ninety percent (90%) of the fair market value of the net assets
and at least seventy percent (70%) of the fair market value of the gross assets
of Navigation. Pursuant to Section 368(a)(2)(C) of the Code, the acquisition by
ST-Sub of substantially all of the assets of Navigation will not be disqualified
under Section 368(a)(1)(C) of the Code solely by reason of the fact that the
assets of Navigation that were acquired by ST-Sub are transferred to ST-Bank.
SouthTrust, ST-Sub and Navigation each will be a "party to the reorganization"
within the meaning of Section 368(b) of the Code. The requirement under Section
368(a)(2)(G) of the Code that Navigation distribute the stock, securities, and
other properties it receives, as well as its other properties, in pursuance of
the plan of reorganization will be satisfied by reason of the issuance by ST-Sub
of the merger consideration directly to the holders of shares of Navigation
Common Stock, and by reason of the cessation of the separate corporate existence
of Navigation pursuant to the Merger Agreement and the applicable provisions of
the Texas Code.
<PAGE> 5
Navigation Bank
{_______}, 1999
Page 5
(iii) No gain or loss will be recognized by the shareholders
of Navigation upon the receipt of shares of SouthTrust Common Stock (including
the Rights associated therewith) solely in exchange for their shares of
Navigation Common Stock. In addition, no gain or loss will be recognized by
shareholders of Navigation upon the receipt of the Rights attached to the shares
of SouthTrust Common Stock.
(iv) The basis of the shares of SouthTrust Common Stock to be
received by the shareholders of Navigation will be the same as the basis of
shares of Navigation Common Stock surrendered in exchange therefor, except for
the basis allocated to any fractional shares.
(v) The holding period of the shares of SouthTrust Common
Stock to be received by the shareholders of Navigation will include the period
during which shares of Navigation Common Stock surrendered in exchange therefor
was held; provided that the shares of Navigation Common Stock were held as
capital assets within the meaning of Section 1221 of the Code as of the
Effective Time of the Merger.
(vi) Shareholders of Navigation who exercise dissenters'
rights, and as a result of which receive only cash, will be treated as having
received such cash as a distribution in redemption of their shares of Navigation
Common Stock, subject to the provisions and limitations of Section 302 of the
Code. Those shareholders of Navigation who hold no shares of SouthTrust Common
Stock, directly or indirectly through the application of Section 318(a) of the
Code, following the Merger shall be treated as having a complete termination of
interest within the meaning of Section 302(b)(3) of the Code, and the cash
received will be treated as a distribution in full payment in exchange for
shares of Navigation Common Stock as provided in Section 302(a) of the Code. As
provided in Section 1001 of the Code, gain or loss will be realized and
recognized by such shareholders measured by the difference between the
redemption price and the adjusted basis of the shares of Navigation Common Stock
surrendered as determined under Section 1011 of the Code. Provided Section 341
of the Code (relating to collapsible corporations) is inapplicable and the
shares of Navigation Common Stock are a capital asset in the hands of such
shareholders, the gain, if any, will constitute capital gain. Such gain will
constitute a long-term capital gain if the surrendered shares of Navigation
Common Stock were held by the shareholder for a period greater than one year
prior to the Merger; if the surrendered shares of Navigation Common Stock are
held by such shareholder for a period of one year or less, the gain will
constitute short-term capital gain.
(vii) The payment of cash to a shareholder of Navigation in
lieu of issuing a fractional share interest in SouthTrust Common Stock will be
treated as if the fractional share actually was issued as part of the Merger and
then was redeemed by SouthTrust. This cash payment will be treated as having
been received as a distribution in full payment in exchange for the fractional
shares of stock redeemed. Generally, any gain or loss recognized upon such
exchange will be a capital gain or loss.
<PAGE> 6
Navigation Bank
{_______}, 1999
Page 6
Our opinion, as stated above, is based upon our analysis of
the Code, the regulations issued thereunder, current case law, and published
rulings of the Internal Revenue Service; the foregoing are subject to change,
and such changes may be given retroactive effect. In the event of such changes,
our opinion set forth above may be affected and may not be relied upon.
Furthermore, no opinion is expressed as to the federal tax treatment of the
transaction under any other provisions of the Code and regulations, or as to the
tax treatment of any conditions existing at the time of, or effects resulting
from, the transaction that are not specifically covered by the opinion.
This opinion is rendered solely with respect to certain
federal income tax consequences of the Merger under the Code, and does not
extend to the income or other tax consequences of the Merger under the laws of
any state or any political subdivision of any state; nor does it extend to any
tax effects or consequences of the Merger to SouthTrust, ST-Sub or ST-Bank other
than those expressly stated in the above opinion.
We have consented to the filing of this opinion as an exhibit
to the Registration Statement. We have also consented to the references to this
firm under the heading "Certain Federal Income Tax Consequences" in the
Registration Statement and in the prospectus which is included as part of the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Yours very truly,
<PAGE> 1
EXHIBIT 9
VOTING AGREEMENT
This voting agreement (this "Voting Agreement") is dated this
3rd day of May, 1999, by and between SouthTrust Bank, N. A., a national
association ("ST-Bank"), and Jerry E. Winters and William C. Woodby, residents
of the State of Texas (the "Co-Voting Representatives") and is joined in by
SouthTrust Corporation, a Delaware corporation and the ultimate parent company
of ST-Bank ("SouthTrust"), and SouthTrust of Alabama, Inc., an Alabama
corporation and a subsidiary of SouthTrust ("ST-Sub").
RECITALS
WHEREAS, pursuant to that certain Agreement and Plan of
Merger (the "Merger Agreement"), dated of even date herewith, by and between
ST-Bank and Navigation Bank, a Texas banking corporation (the "Bank"), and
joined in by SouthTrust and ST-Sub, ST-Sub will acquire the assets and business
of the Bank in exchange for shares of common stock, par value $2.50 per share,
of SouthTrust in a transaction that qualifies as a reorganization pursuant to
Section 368(a)(1)(C) of the Internal Revenue Code of 1986 by the merger of the
Bank with and into ST-Bank (the "Merger"), with ST-Bank being the surviving
corporation;
WHEREAS, pursuant to applicable law the shareholders of the
Bank must approve the Merger;
WHEREAS, pursuant to that certain Voting and Stock
Restriction Agreement (the "Voting and Stock Restriction Agreement"), dated
January 6, 1989, by and among certain of the holders (the "Shareholders") of
common stock, par value $32.50 per share, of the Bank, the Shareholders granted
to the Co-Voting Representatives the right to vote all of the shares of common
stock of the Bank held by each of the Shareholders;
WHEREAS, it is a condition precedent to ST-Bank, SouthTrust
and ST-Sub executing the Merger Agreement that the Co-Voting Representatives
execute this Voting Agreement and ST-Bank, SouthTrust and ST-Sub are relying on
the promises given herein by the Co-Voting Representatives, both in their
capacity as a Co-Voting Representative and as a Shareholder, in proceeding with
the filing of applications for regulatory approval for the Merger and in
undertaking other actions necessary for the consummation of the Merger;
NOW, THEREFORE, for and in consideration of the foregoing and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
Section I. Agreement to Vote the Stock. The Co-Voting Representatives
hereby agree to vote at the meeting of the holders of shares of common stock of
the Bank referred to in Section 5.4 (a) of the Merger Agreement (the "Meeting")
the Stock (as that term is defined in the Voting and Stock Restriction
Agreement) and to direct the vote of all such Stock or to give written consent
as to all such Stock to an action in lieu of the Meeting in favor of approval
of the Merger Agreement, the Merger, all agreements and transactions
contemplated by the Merger Agreement and any proposal which is required by
applicable law to be considered by, and voted upon, the holders of shares of
common stock of the Bank which is necessary or desirable to effectuate the
Merger and the other transactions contemplated in the Merger Agreement.
Section II. Voting with respect to Acquisition Transactions. If the Bank
conducts a meeting of, or solicits written consents from or otherwise seeks a
vote of the holders of shares of common stock of the Bank with respect to any
Acquisition Transaction (as that term is defined herein) or any other matter
which may contradict any provision of this Voting Agreement or the Merger
Agreement or may prevent ST-Bank from consummating the Merger, then the
Co-Voting Representatives shall vote the Stock in the manner most favorable to
the consummation of the Merger and the transactions contemplated in the Merger
Agreement. For purposes of this Voting Agreement, "Acquisition Transaction"
shall mean any of the following: (i) a merger or consolidation, or any similar
transaction (other than the Merger) of any company or entity with the Bank,
(ii) a purchase, lease or other acquisition of all or substantially all the
assets of the Bank, (iii) a purchase or other acquisition of "beneficial
ownership" by any "person" or "group" (as such terms are defined in Section
13(d)(3) of the Securities Exchange Act) (including by way of merger,
consolidation, share exchange, or otherwise) which would cause such person or
group to become the beneficial owner of securities representing 20% or more of
the voting power of the Bank after the date of this Voting Agreement, (iv) a
tender or exchange offer to acquire securities
<PAGE> 2
representing 20% or more of the voting power of the Bank, (v) a public proxy or
consent solicitation made to the holders of shares of common stock of the Bank
seeking proxies in opposition to any proposal relating to any of the
transactions contemplated by this Voting Agreement, or (vi) the making of a
bona fide offer or proposal to the Board of Directors or holders of shares of
common stock of the Bank, to engage in one or more of the transactions referred
to in (i) through (v) above.
Section III. Representations of the Co-Voting Representatives. Each of the
Co-Voting Representatives, jointly and severally, represents
and warrants to ST-Bank, ST-Sub and SouthTrust as follows:
(1) as of the date of this Voting Agreement, the Co-Voting
Representatives have the full legal capacity and authority to execute, deliver
and perform this Voting Agreement;
(2) this Voting Agreement, when duly and validly executed by the
Co-Voting Representatives and delivered by the Co-Voting Representatives will
constitute a valid and binding obligation of the Co-Voting Representatives, and
will be enforceable against the Co-Voting Representatives in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought; and
(3) as of the date of this Voting Agreement, the Voting and Stock
Restriction Agreement is in full force and effect and has not been terminated.
Section IV. Covenants and Agreements of the Co-Voting Representatives in
their Capacity as Shareholders.
(1) Each of the Co-Voting Representatives hereby agrees not to (i)
terminate the Voting and Stock Restriction Agreement or (ii) agree to an
amendment to the terms or provisions of the Voting and Stock Restriction
Agreement other than to such amendments as are favorable to the consummation of
the Merger and the transactions contemplated in the Merger Agreement.
(2) Each of the Co-Voting Representatives hereby covenants and
agrees that, until this Voting Agreement is terminated in accordance with its
terms, each of the Co-Voting Representatives will not, and will not agree to,
directly or indirectly, without the prior written consent of SouthTrust, sell,
assign, transfer, hypothecate or dispose of any such Co-Voting Representative's
shares of Bank Stock.
Section V. Representations and Warranties of the Co-Voting
Representatives in their Capacity as Shareholders.
(1) Each of the Co-Voting Representatives hereby represents and
warrants to ST-Bank, ST-Sub and SouthTrust that he beneficially owns or has
dispositive or voting power over that number of shares of common stock, par
value $32.50 per share, of the Bank set forth opposite his name on attached
EXHIBIT A to this Voting Agreement and that each such share is subject to the
terms and provisions of the Voting and Stock Restriction Agreement.
(2) This Voting Agreement, when duly and validly executed by the
Co-Voting Representatives and delivered by the Co-Voting Representatives will
constitute a valid and binding obligation of the Co-Voting Representatives, in
their capacity as Shareholders and will be enforceable against the Co-Voting
Representatives in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought.
Section VI. Term of this Voting Agreement. This Voting Agreement shall
continue in effect until the later to occur of (i) the consummation of the
Merger and the other transactions contemplated by the Merger Agreement, or (ii)
the termination of the Merger Agreement in accordance with its terms, as
amended from time to time.
Section VII. Entire Agreement. This Voting Agreement and the documents
referred to herein contain the entire agreement among ST-Bank, ST-Sub,
SouthTrust and the Co-Voting Representatives with respect to the transactions
<PAGE> 3
contemplated hereunder and this Voting Agreement supersedes all prior
arrangements or understandings with respect thereto, whether written or oral.
Nothing in this Voting Agreement, expressed or implied, is intended to confer
upon any person, firm, corporation or entity, other than the parties hereto and
its successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Voting Agreement.
Section VIII. Amendment. None of the terms and conditions of this Agreement
shall be amended or modified unless expressly consented to in writing and
signed by each of the parties hereto.
Section IX. Non-assignability. Neither this Agreement nor any of the
rights, obligations or interests arising hereunder may be assigned by the
Co-Voting Representatives. The rights, obligations or interest arising
hereunder may be assigned by ST-Bank to (i) an Affiliate of ST-Bank, or (ii)
any party with which ST-Bank or SouthTrust merges or consolidates, or to
whomever ST-Bank or SouthTrust may sell all or substantially all of its assets.
For the purposes of this Voting Agreement, "Affiliate" shall mean, with respect
to ST-Bank, any entity which, directly or indirectly, controls, is controlled
by or is under common control with ST-Bank.
Section X. Governing Law. This Agreement is made and shall be governed by
and construed in accordance with the laws of the State of Alabama without
respect to its conflicts of laws principles.
Section XI. Captions. The captions as to contents of particular sections
or paragraphs contained in this Voting Agreement and the table of contents
hereto are inserted only for convenience and are in no way to be construed as
part of this Voting Agreement or as a limitation on the scope of the particular
sections or paragraphs to which they refer.
Section XII. Severability. This Agreement shall be deemed severable and any
part hereof which may be held invalid by a court or other entity of competent
jurisdiction shall be deemed automatically excluded from this Agreement and the
remaining parts shall remain in full force and effect.
Section XIII. Counterparts. This Voting Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document with the same force
and effect as though all parties had executed the same document.
IN WITNESS WHEREOF, the parties hereto have caused this
Voting Agreement to be executed and delivered, and their respective seals
hereunto affixed, by their officers thereunto duly authorized, and have caused
this Agreement to be dated as of the date and year first above written.
SOUTHTRUST BANK,
NATIONAL ASSOCIATION
By: /s/ JOHN D. BUCHANAN
------------------------------------
Name: John D. Buchanan
----------------------------------
Its: Senior Vice President
-----------------------------------
ATTEST:
By: /s/ FRANCES L. SANDERS
-----------------------------------
Name: Frances L. Sanders
---------------------------------
Its: Secretary
----------------------------------
[CORPORATE SEAL]
<PAGE> 4
SOUTHTRUST CORPORATION
By: /s/ JOHN D. BUCHANAN
---------------------------------------
Name: John D. Buchanan
-------------------------------------
Its: Senior Vice President
--------------------------------------
ATTEST:
By: /s/ ALTON E. YOTHER
-----------------------------------
Name: Alton E. Yother
---------------------------------
Its: Secretary
----------------------------------
[CORPORATE SEAL]
SOUTHTRUST OF ALABAMA, INC.
By: /s/ JOHN D. BUCHANAN
---------------------------------------
Name: John D. Buchanan
-------------------------------------
Its: Vice President
--------------------------------------
ATTEST:
By: /s/ ALTON E. YOTHER
-----------------------------------
Name: Alton E. Yother
---------------------------------
Its: Secretary
----------------------------------
[CORPORATE SEAL]
/s/ JERRY E. WINTERS
------------------------------------------
Jerry E. Winters
/s/ WILLIAM C. WOODBY
------------------------------------------
William C. Woodby
<PAGE> 5
EXHIBIT A
<TABLE>
<S> <C>
Jerry E. Winters 8,229.5
William C. Woodby 8,599
</TABLE>
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated January 29, 1999
included in SouthTrust Corporation's Form 10-K for the year ended December 31,
1998 and to all references to our Firm included in this Registration Statement.
/S/ ARTHUR ANDERSEN LLP
Birmingham, Alabama
June 1, 1999
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report dated March 22, 1999 with respect to the
balance sheets of Navigation Bank as of December 31, 1998 and 1997 and the
related statements of income, stockholder's equity and cash flows for each of
the years in the three year period ended December 31, 1998 included herein (the
Form S-4 Registration Statement of SouthTrust Corporation) and to the reference
to our firm under the heading "Experts" in the Proxy Statement/Prospectus.
/s/ KILLINGSWORTH & COMPANY P.C.
Houston, Texas
June 2, 1999
<PAGE> 1
EXHIBIT 24
STATE OF ALABAMA )
COUNTY OF JEFFERSON )
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director
whose signature appears below hereby constitutes and appoints Alton E. Yother
and William L. Prater, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign a registration
statement of SouthTrust Corporation on Form S-4 in connection with the
acquisition of Navigation Bank and relating to the registration of shares of
SouthTrust common stock, par value $2.50 per share, including all amendments to
such registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission and with any state securities commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Dated as of this 2nd day of June, 1999.
<TABLE>
<S> <C>
/S/ ALLEN J. KEESLER, JR. /S/ WILLIAM C. HULSEY
- ------------------------------------- -------------------------------------
Allen J. Keesler, Jr. William C. Hulsey
/S/ JOHN M. BRADFORD
- ------------------------------------- -------------------------------------
Van L. Richey John M. Bradford
/S/ REX J. LYSINGER /S/ WM. KENDRICK UPCHURCH, JR.
- ------------------------------------- -------------------------------------
Rex J. Lysinger Wm. Kendrick Upchurch, Jr.
/S/ CARL F. BAILEY /S/ H. ALLEN FRANKLIN
- ------------------------------------- -------------------------------------
Carl F. Bailey H. Allen Franklin
/S/ WILLIAM A. COLEY /S/ DONALD M. JAMES
- ------------------------------------- -------------------------------------
William A. Coley Donald M. James
</TABLE>
